(Kitco News) - Global gold supply rose 2% in 2010 to 4,108 metric tons, the World Gold Council reported Thursday.
The WGC said total supply is likely to rise further as increased exploration-and-project spending from the last decade "starts to bear fruit." Nevertheless, total supply growth should be "modest at best" due to the lack of official-sector sales and stabilization of gold-recycling flows, the WGC said.
Furthermore, the data confirm constraints on supply since mining companies cannot quickly ramp up output to take advantage of a 26% rise in the average price last year, said Eily Ong, of investment research with the WGC. There is a lack of new large deposits and declining ore grades at some mines.
"They cannot just quickly turn the tap on to meet the increase in demand," she said.
For 2010, total mine supply rose 9% to 2,543 metric tons, according to the report. Data in the report was compiled by the London-based consultancy GFMS.
When factoring dehedging by producers, full-year mine production was up 3% to 2,659 metric tons. The report said net producer de-hedging in 2010 fell to 116 metric tons from 252 in 2009, thereby boosting the year-on-year supply figure by 136 tons. The outstanding total hedge book at the end of 2010 was pegged around 125 tons.
The main contributors to increased supply growth last year were Australia, due to the ramp-up of production at the Boddington operation; Argentina, due to expansion of Valadero; China, which remains the world's largest producer; and the U.S., where Cortez Hills increased output in the first quarter. Production declines occurred in Indonesia, the result of mine sequencing at Grasberg, and Peru, due to lower ore grades at Yanacocha.
Recycling of gold around the world was estimated at 1,653 metric tons, the report said. This was down 1% from 2009, which had an especially strong first quarter. Otherwise, 2010 recycling activity "remained elevated relative to historical averages as higher prices continued to attract profit-taking and consumers in the West became increasingly aware of opportunities and channels by which they might sell their unwanted gold items," the report said.
The supply of gold from the official sector turned negative by 87 metric tons, as central banks became "modest net purchasers" in 2010, said the WGC.
By Allen Sykora of Kitco News; firstname.lastname@example.org