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Gold is set for a better year on the market

After a steep decline in gold prices, newly restricted supply should restore the bull market to bullion

By Tom Bailey
World Finance
Monday January 18, 2016
Link:
http://www.worldfinance.com/home/gold-set-for-a-better-year

After years of high gold prices – which peaked in 2011 before seeing a price slide – encouraging a flurry investment to increase production, output for gold is now said to have peaked. According to Thomson Reuters’ GFMS metals research team, production this year could fall by three percent, offering a potential new rise in the market cost.

Encouraged by rising prices, the gold industry saw increased investment into new productive assets. However, after the price of gold began to decline, these new assets caused increasing strain in the gold mining industry, as they struggled to turn a profit and cover extraction costs.

After commodities in general saw a boom in prices during the 2000s, known as the commodity supercycle, many saw a marked fall in prices after 2011: the end of the commodities supercycle. From its 2011 peak, gold prices have declined since by 40 percent.

The volume of gold production is said to have peaked in 2015 at 3,155 tonnes. Now that production levels have reached their highpoint however, it is hoped that once again the price of gold sees a revival, restoring profitability to mines, as a result of a newly restricted supply.

“It is fruitless to try to predict demand dynamics for gold — I always put my faith in a recovery driven by reduction in supply and I believe we will see the first signs of impending recovery in the second half of this year”, said Vitaly Nesis, Chief Executive of Polymetal, a UK-listed gold miner, as reported in the The Financial Times.

So far this year, the price of gold has risen by 2.7 percent, suggesting that a newly restricted supply already has a positive impact on the gold market.