Gold Mining Output Drops Slightly

by Yingling Liu

In 2006, mine production of gold fell by 1 percent to 2,467 tons, in line with output in 2004.1 (See Figure 1.) The world’s top three producers— South Africa, Australia, and the United States—and Indonesia all saw marked losses in production.2

The main shaft at South Deep in South Africa was temporarily closed, slashing production there by half.3 The Batu Hijau Mine in Indonesia suffered production losses due to pit wall stability issues.4 The operators of the world’s two largest gold-producing mines—Freeport- McMoRan at Grasberg in Indonesia and Newmont at Yanacocha in Peru—both reported substantial reductions in output in 2006, estimated at a combined 75 tons for the year.5

Some Latin American countries and China achieved slight production increases when a number of new mines got going.6 The Veladero mine in Argentina and the Amapari and Jacobina mines in Brazil all saw increased output.7 Gold mining in China increased steadily as well. As the world’s fourth-largest gold producer, China produced a record amount of 240 tons of gold in 2006—7 percent more than the year before.8

The gold produced in mines added to the existing gold stockpile, bringing this to 157,967 tons at the end of 2006.9 The jewelry industry accounted for 52 percent of the aboveground gold stocks at the beginning of 2006, central banks held 18 percent in their vaults, private investors hoarded 16 percent, and 12 percent was used for industrial purposes.10 (See Figure 2.)

Gold prices continued to climb in 2006.11 (See Figure 3.) Gold at the London price touched $725.75 in mid-May—the highest level in 25 years.12 The average price throughout the year was $604, up nearly 36 percent from 2005.13

Shrinking sales by central banks were partly responsible for the price hike in 2006.14 Net sales by these banks were estimated to have halved, dropping to 330 tons.15 The decline was somewhat driven by lower sales from members of the renewed Central Bank Gold Agreement (CBGA-2), an agreement under which 15 of the world’s biggest gold holders, including Germany and France, made a commitment to not sell off gold stocks in order to maintain high prices.16 CBGA members sold only 393 tons of gold out of the possible annual allowance of 500 tons.17

The high and volatile prices for gold dampened consumers’ enthusiasm. Gold demand for jewelry fabrication slumped by more than 400 tons in 2006. The greatest losses occurred in the price-sensitive regions of India and the Middle East, while Italy and East Asia (excluding China) also saw substantial declines.18 Chinese retail sales of gold jewelry, in contrast, rose more than 20 percent in 2006.19 World investment in gold—the sum of implied net investment, gold bar hoarding, and coins—in 2006 was just over 680 tons, down 16 percent.20

It is increasingly tough for gold miners to replace gold in the ground with new discoveries. 21 Westhouse Securities estimates that between 1985 and 2003, new gold discoveries slipped by 30 percent from the previous 15 years.22 Each new ounce discovered also costs 2.6 times as much to locate.23

Gold mining corporations have been under growing pressure from the public, jewelry manufacturers, and retailers to pay more attention to their environmental impact. Public protests against leading companies were reported in places where major operations were located, including Indonesia, Peru, Argentina, Papua New Guinea, Romania, and Ghana.24 No Dirty Gold—an international consumer campaign to educate consumers, retailers, and the general public about the impacts of irresponsible gold mining—has over the past three years gathered signatures from more than 55,000 consumers on a petition urging jewelry retailers to sell environmentally and socially responsible gold.25 As of early March 2007, 21 leading jewelry retailers—including Cartier, the Zale Corp., Tiffany & Co., and Birks & Mayors—had endorsed No Dirty Gold’s Golden Rules, a set of social, environmental, and human rights principles to guide more responsible production.26

Includes the following charts and graphs
Global Gold Production, 1950-2006
Above-ground Gold Stocks, End of 2005
Gold Prices, 2000-2006

Notes
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