Gold Metals Report Q2 2016
BMI View: Gold prices will prove resilient in 2016 due to a dovish shift in global monetary policy andelevated systemic financial sector risks. However, we do not foresee a sustained multi-year recovery and themining sector will thus remain under significant stress. We forecast slowing mine production growth andincreasing consolidation.
We have raised our gold price forecasts for 2016 to USD1,150/oz from USD1,000/oz. A recalibration ofexpectations for the global monetary policy trajectory by investors, and equity market turmoil, havecombined to create a more positive environment for gold prices than we previously anticipated.
Global gold production growth will slow, as miners ramp up divestment and consolidation to adjust tostructurally lower gold prices. The DRC will remain a growth bright spot, supported by low productioncosts and rising demand from key Asian markets.
In addition to weak prices, falling ore grades will drive up production costs, requiring miners to extractmore rock to maintain levels of gold output. For instance, US 2015 gold production declined largely dueto lower ore grades at Barrick Gold's Cortez and Goldstrike mines. While technology continues topartially offset this trend, in many markets production costs will increase due to tightening regulationsand rising labour and energy costs.
Gold miners will ramp up divestment and merger and acquisition (M&A) activity as firms seek to shedhigh-cost assets or form joint-ventures to better withstand the low price environment over the comingquarters. Given the weak price environment, the wide range of performances across the gold miningsector provides opportunities for well-positioned firms. For instance, global gold mining M&A andinvestment over the last 12 months totals USD17.3bn, with Canadian firms driving significant activity.
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