Gold has seen a steady increase in demand over the year particularly in the jewelry market in India and China. Central bank purchases have again remained consistent and continue to illustrate that there is value in gold.
Gold producers, supply is forecasted to remain stable towards the end of 2015 and into 2016, with increases in production being driven in countries whose currencies have weakened against the US dollar. US dollar strength has positively impacted production costs in local currencies around the world, again supporting supply growth in the future. Producers, however, need to be wary of mine inflation in the medium-term, which has the danger of offsetting any weakening of local producer currencies against the US dollar. US dollar gold prices remain under pressure and are expected to be further impacted by US interest rates, although this could be partially offset by a forecasted increase in demand in the jewelry market. It is evident that fewer deals are taking place in the gold industry and buyers are becoming more circumspect, although the value of deals announced remains similar to prior years. This indicates that deal making has focused on significant and meaningful operating mines where wealth is clearly evident. This is a good indication that certain groups of investors see long-term value in gold. The consistent value and lower number of transactions can partly be attributed to the size of the targets and partly to perceived premiums paid, based on the nature of targets being more operating assets as opposed to exploration and development assets.
“It is evident that fewer deals are taking place in the gold industry and buyers are becoming more circumspect, although the value of deals announced remains similar to prior years.”
KPMG in South Africa