Forget Peak Gold Theories: Global Gold Production Hits New Record High

Precious metals consultancy firm GFMS reports that global gold production reached a record high in 2010, "defying the gold fanatics who claim that output is in terminal and irreversible decline".

GFMS executive chairman Philip Klapwijk: "It seems we've broken away from the flat-to-down trend of the last decade,", in a presentation in Toronto.

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Mine production rose 2.7% to reach an estimated 2,652 tonnes, as a result of new mines coming on stream or ramped up production. What is inetresting is that this follows a 6% increase in 2009.

GFMS says production will increase another 6% in the first half of 2011.

From the Financial Post: "From 2002 to 2008, gold production declined even as prices soared from less than $300 U.S. an ounce to more than $1,000 U.S. The poor supply-side response to rising prices led some experts to declare that "peak gold" -- the point at production reaches its historical zenith and begins to decline -- was already upon us.

Now that output has jumped two years in a row and exceeded the previous peak level in 2001, that case is getting harder to make, at least in the short term.

In the longer-term, the industry is mining lower grades and making fewer new discoveries.

Jon Nadler, senior metals analyst at Kitco Metals Inc., said that the rise in output reflects the massive amounts of exploration spending over the last several years.

"You don't spend $40-or $45-billion on finding new gold and expect no fruit to be borne.

"It's not necessarily low-hanging fruit, but it certainly is fruit," he said.

It has taken years for all of that exploration to lead to higher production, which reflects how long it takes to get a new mine permitted and built. By the same token, experts say the declining production of the last decade reflects the meagre spending on exploration in the 1990s and early 2000s, when prices were poor.

At current prices above $1,300 U.S. an ounce, gold miners are also looking at ways to maximize output from their existing assets, which supports higher overall output. For instance, Barrick Gold Corp. is studying a plan to expand production at its Turquoise Ridge mine from less than 200,000 ounces a year to 800,000 by chasing lower-grade ore.

"At these margins, how could these companies not be pumping out as much as possible? It would behoove them to do the most they can," Nadler said.

GFMS also pointed to rising production from emerging regions like China and West Africa, which more than offset declines in places like South Africa and Peru. South Africa used to be the world's dominant producer, but now lags behind China, Australia and the United States.

GFMS remains very bullish on the overall gold market, calling for an average price of just over $1,400 U.S. an ounce in the first half of 2011, with $1,500 U.S. breached in the summer. Klapwijk said the biggest drivers remain potential growth in investment demand, loose monetary policy, and inflation fears. He also said that the bargain hunters come out when the price dips."