Gold: Mixed fundamentals for 2017 – Natixis

Research Team at Natixis expect marginally lower global mined production in 2017 for gold after for the first time in at least a decade, mined supply was flat in 2016, peaking at roughly 3,236 tonnes.

Key Quotes

“Chinese mined gold output also slowed down for the first time in a decade, rising by only 3.43 tonnes to 453.48 tonnes. Producers started sharply cutting CAPEX in 2012, it usually takes 5 years from when a drop in long term investment takes place to when mine supply starts dropping.”

“Price elasticity will mean that at lower gold prices, supply from recycled gold will also drop.”

“Taxes on gold imports into India are expected to keep demand lower than full potential.  That said, there are indications that since the start of the year the market has started getting better. Demonetisation of 500 and 1,000 currency notes had a direct impact on smuggling. Gold is coming back through organised channels. The latest data obtained indicates that in the first two months of the year imports of gold (bars and doré) is up by 29% yoy to 139 tonnes.”

“Central bank additions to keep coming from gold producing countries (Russia, China, Kazakhstan) where the share of gold out of total FX reserves is relatively low (compared with developed countries). We do not expect large additions like we saw in the period 2009-14.  We see central banks more interested in dynamic hedging (especially in emerging countries) and leasing.”