Gold continues to be a measure of value globally whether it be in the form of jewelry or bars held by central banks as is demonstrated through the demand outlook. This is particularly prevalent in the east where there are more individuals moving into the middle class earnings categories. Central banks remain in a net purchasing position and ETFs are flat.
Supply remains a challenge globally with increasing mining costs, diminishing reserves and resources, regulatory pressures and the cost of social license to operate. Even though gold has shown some stability between US$1,150 and US$1,200 in the last two quarters margins have shrunk, brownfields exploration has reduced significantly and numerous greenfields exploration projects have been postponed or abandoned not boding well for future production. The key theme for the gold mining industry is cash generation, followed closely by cash conservation. Miners are looking to focus on reducing costs and adding flexibility into their mine plans which allow them to adjust to market conditions quickly. The ability of miners to harness technology and inspire a culture of innovation throughout their operations while satisfying the needs and wants of all stakeholders, including financiers, will define their economic value to investors and any potential buyers.
"The key theme for the gold mining industry is cash generation, followed closely by cash conservation."
KPMG in South Africa
Gold prices rose by nearly 2 percent from US$1,206/oz in Q4, 2014 to US$1,218/oz in Q1, 2015, driven by the announcement of European Central Bank’s bond buying program in January 2015. However, prices swiftly fell back to US$1,150/oz towards the end of Q1, 2015. The momentum of investments in gold is expected to be less during 2015, resulting in limited recovery of gold prices. Gold prices are expected to slightly recover to US$1,220/oz in Q1, 2016 due to tightening of gold supply, increased demand for jewelry and growing investments.1
In 2014, gold prices fell by nearly 10 percent from US$1,392/oz in 2013 to US$1,266/oz, due to lower gold consumption in major markets, higher interest rates and better returns from other assets including silver. Gold prices are forecast to decrease by 3.5 percent in 2015 from US$1,266/oz in 2014 to US$1,220/oz in 2015 as the expected increase in US interest rates in Q3, 2015 will reduce the demand for gold as an investment asset. However prices may increase from 2016, if interest rates remain low and US inflation remains contained.2
During the forecast period (2015F–2019F), prices are expected to increase significantly by nearly 7 percent from US$1,220/oz in 2015 to US$1,309/oz in 2019, majorly driven by continuing demand for gold jewelry. Growing purchase of gold by central banks and increased Exchange Traded Funds (ETFs) investments are expected to drive gold prices over the forecast period. However gold prices are not expected to reach the average highs of US$1,618/oz recorded in 2011 and 2012 during the forecast period.3
1Commodities – Gold, The Economist Intelligence Unit, accessed June 2015.
2“Resources and Energy Quarterly”, Bureau of Resources & Energy Economics (BREE), Australian Government, March quarter 2015, accessed June 2015.