Australian gold production falls

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According to the latest report by the Melbourne consultancy firm Surbiton, in the third quarter of 2011 Australia produced 2.1 million troy ounces of gold, which is the equivalent of 66 tonnes – a 2.4% decrease in comparison to the second quarter. Due to rapidly increasing gold prices, in the third quarter Australian mining companies have been concentrating on extracting gold ore from ever-greater depths. Most gold producers have already given up their hedge business some time ago in order to sell their gold at the current market prices. After hitting a maximum of $1,920 per troy ounce, the production of gold has become so profitable for some companies that they have started extracting gold from greater depths. Thus, companies have neglected to extract from lesser depths in order to preserve those resources for times where gold prices are lower. Deep mining means a dramatic increase of production costs – a risk companies have decided to take as part of long-term strategies.
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Production of gold in Australia slid again last year, despite gold fetching higher nominal prices than ever before.

According to gold experts, Surbiton Associates, 264 tonnes of gold were produced last year, two tonnes less than in 2010.

The 264 tonnes equated to about 8.5 million ounces and ensures that Australia remains a major player in gold, with only China producing more last year. The United States was the world's third-biggest producer with 240 tonnes.

Australia's gold production was well below the nation's production peak in the late 1990s.

This further suggests the possibility of peak gold production. Of the world’s four biggest gold producers (China, Australia, the U.S. and South Africa), only China has managed to increase gold production in recent years and this Chinese gold is used in China to meet the rapidly growing demand for gold jewellery and coins and bars as stores of value in China.

Thus Chinese gold is not exported into the international market which means that the supply/demand balance in gold is remains tight and the last Wednesday's manipulated sell off provides yet another buying opportunity.

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