(MENAFN- ProactiveInvestors) Shell’s bid for BG has injected some life into the oil sector but for gold company investors there seemingly isn’t even the chance of M&A to lift the gloom.
Thomson Reuters GFMS' latest survey shows corporate activity within the gold mining industry fell to just US$7.3bn (£4.9bn) in 2014.
It was a 9% decline from the previous year and this inactivity reflects the current parlous state of the gold sector suggests GFMS.
Production expanded in 2014 to 3133 tonnes as previously commissioned projects came on stream.
This year is set to be flat but after that “a palpable decline” sets in as miners’ priorities remain firmly centred on retrenchment and rationalisation.
This determination to wear the hairshirt and boost efficiency follows the excesses of previous decades.
GFMS adds that at 103 tonnes in 2014 hedging by miners rose to the highest level since 1999.
The researcher though said this does not yet appear to be a widespread trend as it remains confined to a small subset of producers.
Heavy forward sales by miners in the nineties and following years are cited by some commentators as a root cause of the grade and cost problems currently dogging the industry.
GFMS added that while this year may see net hedging it is only likely to be of a comparable scale to 2014.
The keenly read survey the 49th predicts gold prices will be weak for the remainder of 2015.
In dollar terms gold will dip to $1100/ounce with an average over the year of $1170/ounce.
Prices will start to rise towards year-end and in 2016 should recover to $1250/ounce “as buying picks up in Asian markets and institutional investment in these markets offsets the recent decline in Over-the-Counter demand in the West.”
Gold is now starting to recover from “the hurricane that hurricane that swept through it in 2013 when prices slumped by 28% said the survey.
“China suffered from over-purchasing in 2013 while lack of confidence in any near-term price recovery deterred investment purchases elsewhere.”
“There are signs that confidence is starting to return however as the physical market adjusts and takes comfort from the price stabilisation since November 2014.”
US monetary policy will remain a central focus over the course of 2015 but a rising interest rate cycle is already in the price it says.
One trend that has been consistent has been the increase in central bank holdings which rose by a net 14% or 466 tonnes in 2014 led by Russia whose gold purchases reach a record 173 tonnes.
Kieron Hodgson at Charles Stewart commented that one statistic that jumps pout form the survey is that gold remains among the most leveraged of all asset classes when compared to actual production.
“Global trading volumes in 2014 exceeded the 183600 tonnes estimated to have been produced since the start of human production by a staggering three times or put in a more recent context a mere 188 times global production in 2014.
“Even more worrying is that at an estimated $22trn in trades annually the gold market exceeds the turnover on the Dow Jones the S&P 500 equity markets combined and that of the German and UK government bonds.”
Early into trading on Wall Street Friday spot gold was US$1207 up about US$11 on the week and in the black again for the year so far.
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