A Bright Future for Precious Metals: The West's Continuing Economic Growth Represents Good News for Africa's Precious Metal Miners and Gemstone Producers Who Can Anticipate Buoyant Markets for Their Products. Moin Siddiqi Reports
Siddiqi, Moin, African Business
The markets for gold, silver, platinum and gemstones are all highly sensitive to global business cycles. Frenetic activity in times of booming consumer spending--particularly in the wealthy Organisation for Economic Co-operation & Development (OECD) countries--provides a welcome financial windfall for producers of these precious commodities.
Encouragingly, the major consumers of these commodities have all achieved robust growth over the past year, and a growing demand for bullion, diamonds and other precious stones can be anticipated. For example, the Chinese economy grew by 9.2% in 2004, India by 6.7%, and Saudi Arabia by 4.5%.
Within the OECD itself, the US economy grew at 4.4%, Japan's at 4.0%, and Britain's at 3.2%. In 2003, India was ranked as the world's biggest gold market, followed by Italy and America.
China is also emerging as a major gold market, with annual demand predicted to grow to some 600t within three years, reflecting rising prosperity in the major cities of Shanghai and Beijing.
The consumption of platinum group metals--used heavily in the automotive and electronic industries--has increased in line with global growth during 2003-04. The price of silver, a precious metal mainly used in jewellery manufacturing--has soared by 50% over the last year to $7.91/oz (troy).
Precious metals and gems are universally priced in the US dollar, and that currency's recent rapid depreciation against the world's major currencies such as the euro, yen and sterling, has reduced these commodities' prices further, in real terms, across the eurozone, Japan and Britain.
This has boosted gold's attractiveness to investors and consumers outside dollar-zone areas, and reduced local retail prices. That is important because the demand for jewellery is price-sensitive in Asian-Pacific markets.
The dollar/euro exchange rate is largely driving the price of gold upwards. Bullion hit an 18-year high in early December of $457/oz, underpinned by the dollar's precipitous slide and an influx of speculative money from hedge funds. The price of gold has risen by about 80% from its low of $253/oz of April 2001.
Gold's potential to post further gains remains intact. Many in the market believe that should the euro break above $1.35-40 level, the gold price could reach $460-70/oz. Indeed, some market analysts envisage the precious metal soaring as high as $500 in coming months.
In fact, gold has regained some of its previous status as a 'safe-haven' investment amid turmoil in the forex markets, higher energy prices, and continuing geopolitical instability. As one analyst puts it: "It's effectively a financial instrument that behaves like a currency. When investors want to sell the US dollar and are not quite sure where to put their money, they put it into gold, even if just temporarily."
Gold is produced in over 900 mines spread across the globe (the exception being Antarctica where mining is banned). Sub-Saharan Africa is an important 'gold-belt' region. It accounts for 45% of proven global reserves and 25% of annual production.
Global mined production, in 2003, totalled 2,593t. According to precious-metals consultancy, Gold Fields Mineral Services (GFMS), Africa's output was 596.4t, Asia--including China--518.6t; North America 415t; South America 414.8t; the former Soviet Union 311t; and Australia 285t. The top-five producers were South Africa (363t), the US (285.2t), Australia (285t), China (207t), and Russia (181.5t).
For 2004, GFMS estimates that global output may drop by 3% to 2,506t, partly due to problems at Indonesia's Grasberg mine (the world's largest) and reported losses in Australia and the US during the first-half of the year. But, referring to July-December exploration and production activity, GFMS noted: "A number of new mines in Mongolia, Suriname, and Uzbekistan, which are ramping-up production, should provide a reasonable offset, in the second-half, to lost output in some of the more mature mining districts. …