The mining industry is currently restoring operating margins and free cash flow at the expense of production growth, while the global gold supply is flattening, with significant mine closure risk, should gold venture below the $1 200/oz mark, Sentry Investments senior VP and senior portfolio manager Kevin MacLean told investors in Toronto on Tuesday.
He said that while mine closures had started, the global supply was also diminishing, with the significant liquidation from the exchange traded funds (ETFs) now nearing the end and Chinese and Indian gold scrap exports being zero.
Compounding the looming supply plateau, was that MacLean expected record global gold demand in 2013, noting that global demand totalled 2 533 t during the first half of the year.
He said the gold price was destined to find support, should the continued ETF liquidation not continue to offset reduced scrap output.
MacLean said that China was taking advantage of the current down cycle as the government and citizens were building their gold investments. He noted that China wants its yuan to rival the US dollar as a global reserve currency, and would be able to effectively do that by buying only six year’s worth of global gold output.
In fact so strong is the current Chinese demand that it is at twice the peak Indian demand, and comprises about 55% of global gold mining output.
He expected India’s historically strong demand for the yellow metal to stabilise well above the current depressed levels, noting that it could only get better from the current near-total absence of imports.