Production vs price: The battle for gold’s glitter

Australian gold production is expected to rise faster than prices weaken over the next couple of years, according to the latest Resource and Energy Quarterly from the Australian government.

In the detailed look at the gold sector in the June Quarterly, it is clear the outlook for the precious metal isn’t as buoyant as it was in mid- to late-2020, when the Covid pandemic was sweeping across the world.

But nor is the outlook as dire as some would suggest now interest rates are rising and the US dollar is at multi-year highs – especially against the yen where the greenback is at 20-year highs.

Gold prices fell sharply this week – down 3% this week and falling well under $US1,800 an ounce to 9-month lows at one stage.

That’s a blip for the time being and linked to the strength of the greenback and rising US interest rates.

But the outlook for Australian gold production is better than the market prices suggest – The resource Quarterly forecasts that local output will rise solidly over the next three years, despite weaker US dollar and Australian dollar prices for the metal.

The Quarterly estimates that world gold prices are expected to average about $US1,850 an ounce in 2022, before falling to an average of $US1,665 in 2024 as loose monetary policy is withdrawn in advanced economies, and safe-haven demand eases.

“Driving the fall in 2023 will be rising interest rates — as central banks in advanced economies tighten monetary policy in response to surging inflation. Lower safe haven demand will do less to ameliorate the impact of higher interest rates on gold demand,” the Quarterly says.

The Quarterly sees the Australian dollar gold price falling sharply which will crimp margins. (The Quarterly forecasts the value of the Aussie dollar to average 72 US cents this year, rising to 76 US cents next year. It was just over 68 US cents on Friday.)

“In combination with forecast appreciation in the Australian dollar, the lower US dollar gold price is expected to lower the Australian dollar gold price from A$2,556 an ounce in 2022 to A$2,162 an ounce in 2024,” the Quarterly forecast said.

That’s a fall of more than 15%, which with higher energy costs, inflationary boosts to other inputs, perhaps higher wages and Covid will force gold mining companies into cost cutting and perhaps mergers – like the moves we have seen from Gold Road taking over DGO and the three-way jockeying between Genesis, St Barbara Mining and Dacian Gold.

For that reason, cost pressures will be a big problem for Australian miners in coming years.

These problems have already impacted gold miners, as the Quarterly points out “Labour and skill shortages affected Australian gold mine production in the March quarter 2022” and with inflation, higher energy costs and Covid will continue to impact the sector, as they are doing for every other part of the mining industry, no matter the country.

Despite the problems this year, gold production still rose by 3.8% year-on-year in the March quarter to 77 tonnes.

The Quarterly says despite the rise in the March quarter, Australian gold output is estimated to have fallen by 2.1% to 313 tonnes in 2021–22, due to the impacts of COVID-19 related labour shortages and supply chain issues.

But it sees output recovering this financial year and next with a rise in Australian production to rise from 313 tonnes in 2021–22 to 338 tonnes in 2022-23 and 361 tonnes in 2023–24 as new projects and expansions of existing projects come online.

In fact Australian gold production is forecast to rise at pretty solid average annual rate of 7.7% during 2022–23 and 2023–24.

Gold earnings are forecast to rise from $23.5 billion in 2021–22 to $26 billion in 2022-23 and then dip to $25.5 billion in 2023–24, “as rising gold export volumes exceed the forecast decline in gold prices.”

Australian gold export earnings fell by 21% year-on-year to $5.4 billion in the March quarter, driven by a 22% fall in gold prices.

“Increasing gold production is expected to drive higher export volumes over the next two years, while the forecast decline in export values in 2023–24 is expected to be driven by lower US and Australian dollar gold prices,” the Quarterly said.

Looking globally, world gold supply rose 4.3% year-on-year to 1,156 tonnes in the March quarter, driven by a 2.6% rise in global mine production and a 15% increase in gold recycling.

“Stronger gold recycling activity in the quarter largely reflected higher US dollar gold prices, with increases achieved despite the introduction of lockdowns in China,” the Quarterly pointed out.

Global mine production rose to 856.5 tonnes during the March quarter 202 – thanks mostly to increased production in China and Australia, the Quarterly forecasts.

Chinese production — the world’s largest gold producing country — increased by 5% year-on-year as most mines in Shandong province resumed production in the March quarter 2022. Shandong’s provincial government halted operations in 2021, as safety inspections took place.

Production in Australia increased by 3.8% year-on-year in the March quarter, to 77.0 tonnes, US output rose 4% in the March quarter, due to the extraction of higher-grade ores and increased output from the Carlin mines of Nevada.

In West Africa, production in Mauritania rose by 54% year-on-year, as the first phase of the Tasiast expansion project was ramping up through the quarter.


For 2022 as a whole, the Quarterly says global gold supply is forecast to increase by 3.5% to 4,868 tonnes, driven mainly by higher gold mine production and gold recycling.

World gold mine production is forecast to rise by 2.5% in 2022 to 3,671 tonnes, led by increases in China, Australia, North America and West Africa.

High gold prices are also expected to support greater recycling activity, with recycling volumes forecast to rise by 4.6% to 1,196 tonnes.

The rise in Australian production to 338 tonnes in 2022–23, will come from new mines and expanding output from existing operations.

The Quarterly mentions Red 5’s 6.2 tonnes per year King of the Hills gold project in WA due to start production in the September quarter.

First gold was expected from Calidus Resources’ 4.3 tonnes per year Warrawoona gold project in WA. Heritage Minerals plans to open the 1.6 tonnes per year Mount Morgan tailings project in Queensland in 2023.

Production is then forecast to reach 361 tonnes in 2023–24, as Newmont’s Tanami Expansion 2 is completed in early 2024, Bellevue Gold’s 5.7 tonnes a year Bellevue gold mine in WA comes online in the June quarter of next year, and Vista Gold’s 11 tonnes per year Mt Todd project in the Northern Territory comes online in March quarter 2024, according to the Quarterly.

The Quarterly says the primary risk to the Australian gold production forecast is the extent to which supply chain issues and labour or skills shortages continue in the short term for Australian gold producers.

For example, Silver Lake Resources withdrew their 2021–22 production guidance after the March quarter 2022, due to COVID-19 related labour shortages and supply chain interruptions.

St Barbara, Dacian, Ramelius and Evolution have all revealed falls in 2021-22 production or flagged impending falls. But Gold Road this week revealed a strong quarter for its 50% owned Gruyere mine in WA (GoldFields owns the other 50%).


The Quarterly forecast that world gold consumption will rise 6.1% to 4,265 tonnes this year, driven largely by stronger investment demand — rising by 28% year-on-year.

Investment demand (gold-backed ETFs or bar & coin holdings) has been revised to 1,284 tonnes in 2022, 30% higher than forecast in the March 2022 Resources and Energy Quarterly.

Investment demand in 2022 has been revised up as expectations of rising inflation and ongoing geopolitical uncertainty add to gold’s appeal.

Jewellery consumption is expected to rise by only 1.2% in 2022 — lower than previously forecast — due to weaker than expected demand in China and India during the first half of 2022.

Chinese consumption may be impacted by the ongoing impacts of measures to control the spread of the Omicron variant of the COVID-19 virus in many of the major cities in China.

World gold consumption is forecast to decrease by 1.9% to 4,183 tonnes in 2023, as investment demand eases from relatively strong levels in 2022. Gains in real bond yields should slow in 2023, as the major central banks largely complete the withdrawal of stimulatory monetary policy.

Jewellery consumption is expected to grow by 6.9% year-on-year in 2023, as lower prices support purchases in key consuming countries such as China and India.

World gold consumption is forecast to increase by 6.9% in 2024 to 4,470 tonnes, driven largely by continued growth in global jewellery consumption. The ongoing economic recovery in developed nations should boost consumption.

Rising income growth and the forecast decline in gold prices, are expected to support demand from price-sensitive consumers in China and India.

The major risks for gold prices in the next year or so will be rising, inflation, Covid and rising interest rates.

“The path of official interest rates — and partly by extension, real bond yields — over the forecast period, is highly uncertain and subject to central bank assessments of economic conditions.

“A faster than expected rise in real bond yields could lead to a steeper than forecast fall in gold prices, as the opportunity cost of holding gold increases. On the other hand, a slower tightening of monetary policy would likely result in a slower than forecast decline in gold prices, as real bond yields could be expected to rise more slowly,” the Quarterly said.