Australia’s “Resources & Energy Quarterly” Release

From the Department of Industry, Innovation & Science, Office of the Chief Economist comes Australia’s latest Resources & Energy Quarterly release. There are a number of interesting snapshots in the report when it comes to Australia’s participation in the gold market as the world’s second largest producer.

As pictured below, in the last year Australia produced 290 tonnes of gold comprising 8.9% of the world’s mine output. Readers may be interested to learn that the single largest use for gold globally is in jewellery at 47%, twice that used in gold coins and bars and almost 6 times that used in Central Bank reserves. India and China are the biggest participants in the jewellery consumer markets as we’ve discussed previously.

The report paints a picture of increased global demand (forecast to rise by 1.8 per cent in 2018) coinciding with stagnant supply and a fall in recycling output.

Jewellery consumption is forecast to increase by 3.5% in 2017 driven largely by the economic growth in India and China supporting higher discretionary spending and despite the GST introduced in India which we covered recently.

Partly driven by growth in smartphone usage, gold consumption in electronics increased by 3.7% YOY in the March quarter. Gold used in electronics is forecast to increase by 2.2% in 2017 to 261 tonnes.

Total gold supply decreased by 12% year-on-year in the March quarter 2017. With global mine output stagnant, the fall was driven by a drop of 21% YOY in recycled supply globally to 283 tonnes. The report predicts world mine production to plateau over the next three years suggesting that new projects capable of commercial production will be required to maintain the current level of world supply.

Somewhat telling is the 30% YOY increase in Australia’s gold exploration expenditure in the March quarter. At $155 million, gold exploration expenditure comprises just under half of Australia’s total exploration expenditure in the March quarter.

The release went largely unnoticed in the news community with the exception of Steve St. Angelo at SRSRocco Report who, with significant relevance to our post yesterday, had the following to say about the department’s release:

“Are the Chinese getting close to announcing a new gold-backed currency?  Well, if the record amount of Australian gold exports into China is an indicator, it may be close at hand.  While the Chinese have been importing a lot of gold from Australia, it reached a new record high in 2017.”

Citing the government report, Steve notes that Australian gold exports destined for Hong Kong and China were higher during the Q1 of 2017 than any other quarter on record and increased by 54% over the same time last year as pictured below.

Confucius is attributed with saying “The beginning of wisdom is to call things by their proper name.” With new commercial production required just to maintain current global gold supply, obvious upward trending demand characteristics spearheaded by the East and the efforts underway to increase the role of gold in monetary transactions, J.P. Morgan’s attempt at naming gold during his 1912 congressional testimony seems as wise as any.