In Japan, a combination of equity market and banking sector weakness, with the withdrawal of a government guarantee of cash deposits at Japanese banks, has seen Japanese consumers moving cash savings increasingly into gold investment products since the beginning of 2002. In addition, new investor and speculator interest in gold has been evident on both the New York and Tokyo commodity exchanges, and buying on these exchanges has contributed to the spot price moving to above $300/oz since the first week of February.

Encouraging market conditions for gold

Market conditions for gold today are significantly more positive and encouraging than they have been for some years. The end of the record economic boom of the 1990s has seen both a sharp correction in equity market values and an erosion of consumer confidence in the super-profits promised. This has led to a favourable consideration of gold as a store of value investment in uncertain times and this renewed interest is reflected in the rising spot price for gold.
 

Spot gold price ($/oz)

Investor interest has been reinforced by other elements in the market itself. We have seen for some time the benefits of the Washington Agreement on central bank sales of gold. This has given the market an important degree of certainty regarding physical flows from the official sector. A high degree of confidence now attaches to the probability of renewal of this agreement, which would extend the pattern of orderly behaviour from that sector.

Supply to decline

The growth in new production from gold mining has all but stopped and it is widely expected that the supply of gold on to the market from gold producers will decline materially over the next five years. A further positive impact on the supply side is already being experienced in the absence of significant new hedging of future production by gold mining companies. This is accompanied by a process now well under way amongst a number of gold producers of running down existing gold price hedges by delivering current production into these contracts. This process is the equivalent of reducing supply onto the market as new production is delivered into such contracts rather than being sold currently on the spot market. One final element in favour in the market been a reduction in net physical disinvestment of gold, particularly from European holders of the metal, but also in respect of the post-1999 flow-back of coins in the US market.

Not all of the circumstances in the physical market for gold have been favourable. The economic downturn, particularly in the developed markets, has had a negative impact on gold offtake for jewellery fabrication. Gold demand in certain developing markets also slipped during the year for reasons relating to local currencies and the higher dollar gold price. However, overall, this fall in physical demand for the metal has been matched by the lower levels of supply.

Looking ahead

Looking to the year ahead, we believe that market circumstances will remain favourable for gold and that this will lead to further interest in our market.
 

Gaoussou Dembele has taught the art of goldsmithing at the Bamako Jewellery School, in Mali, for seven years, having trained and graduated as a goldsmith at the same school. The people of Mali have a long and cherished history of goldsmithing and it was to this country ? and to the Bamako school ? that AngloGold turned when it organised and sponsored a visit to Mali by a team of South African lecturers training in traditional African goldsmithing techniques. AngloGold has donated tools to the school as a token of its appreciation of the enthusiasm with which they have shared their expertise and knowledge in this age-old craft. 

Kelvin Williams
Executive Director: 
Marketing