Will India Breathe Life into the Gold Mining Industry?
Looking back at 2014, the main highlights of the gold industry were: strong demand in India and U.S. but weak global demand, record mine production and stable gold prices with relatively low volatility. Average price in 2014 stood at $1,266.4 per ounce, a 10% drop from the average price of $1,411 per ounce in 2013.
Gold started off 2015 with a bang as safe haven buying mainly due to increase in currency volatility, uncertainly over Greece’s future in the euro zone and expected quantitative easing in Europe, propped up prices. However, the gains fizzled out as gold prices again dropped on strong U.S jobs report for the month. Following which, gold prices fell to new six-week lows as equities recovered on hopes that Greece would work out a deal with its creditors. Moreover, China, the world’s second largest gold consumer, will be closed for a week during the Lunar New Year holiday, thereby removing a key support for gold prices.
Share prices of some of the gold miners, like Goldcorp Inc. (GG – Analyst Report), Barrick Gold Corp. (ABX – Analyst Report), Yamana Gold, Inc. (AUY – Snapshot Report), Kinross Gold Corp. (KGC – Analyst Report), Agnico Eagle Mines Ltd. (AEM – Analyst Report) and Newmont Mining Corp. (NEM – Analyst Report), have taken a beating following the dip in prices.
Let’s take a deeper look at the drivers of price — the classic case of supply and demand.
Global Demand Lags Y/Y; U.S., India Show Resilience
As per the World Gold Council, total gold demand dipped 4% in 2014 to 3,924 tons. This was not surprising as the year was pitted against remarkable demand levels witnessed in 2013, when customers flocked to buy gold due to the 25% drop in prices.
In 2014, global jewelry demand dropped 10% to 2,153 tons. After a weak first half, demand for jewelry surged in the fourth quarter, marking the strongest quarter witnessed since 2007, mainly due to India and U.S. Jewelry demand was a record 662 tons in India for the year, thanks to the festive buying during Diwali and the wedding season.
