The upward trend for gold
The single most important driver of ABG’s earnings and its ability to generate cash flows is the market price of gold.
In 2012 the price of gold traded in a range of US$1,540 to US$1,790 per ounce and closed at US$1,675 per ounce. Gold prices averaged US$1,669 per ounce in 2012, a new record average and a US$97 per ounce improvement on the US$1,572 per ounce average in the prior year period.
The market price of gold has been positively influenced by low US dollar interest rates, sovereign debt concerns, investment demand and the monetary policies put in place by the world’s most prominent central banks.
Investors looking for a safe haven
Investors dislike uncertainty and this drives an increased demand for gold as a safe haven. Throughout 2012, we saw increased volumes held by major global exchange traded funds (ETFs) and global exchanges. The worldwide demand for physical gold, in forms such as bars and coins, was also buoyant.
Declining supplies from gold mines
Over the long-term, we expect lower supplies from mines due to:
- a trend of lower-grade production by many producers
- lengthier timescales and greater obstacles to bring projects into production
- a lack of global exploration success in recent years
- a scarcity of new, promising regions for gold exploration and production.
Inflation and the US dollar
Gold is viewed as a hedge against inflation and has historically been inversely correlated to the US dollar. Therefore, higher inflation and/or depreciation in the US dollar should be positive for the price of gold.
Gold purchases by central banks
Gold prices also continue to be influenced by the impact of central bank gold purchases and investor interest in owning gold. In 2012, central banks purchased an estimated 536 metric tonnes of gold, and investor interest led holdings by major global exchange traded funds to increase by 10 million ounces in the year to total 89 million ounces at the end of the period. Historically, gold has been viewed as a reliable store of value in times of financial uncertainty and inflation and as a de facto global currency. Investor interest in gold as an asset class has increased greatly as a result of this.