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Why China’s domestic gold production is declining

Must-know: Why gold prices could still be under pressure (Part 20 of 21)

(Continued from Part 19)

China’s domestic gold production

China is the largest gold producer in the world. It accounts for ~15% of the total production. As a result, any significant change in either production or consumption can impact gold prices. In this part of the series, we’ll analyze how China’s domestic gold production is panning out.

The World Bureau of Metal Statistics (or WBMS) reports China’s mine output on a monthly basis. For January–August 2014, China’s production grew by 6.4%—compared to the same period last year. This is lower than the period from January–July, when the production grew by 7.4%. August’s production is at the same level as it was for July—38.2 tons.

According to BMI analyst Xinying Chia, China’s output growth is expected to slow down from the current 6% to 0.9% in 2018. The main reasons for the decline are depleting reserves, falling ore grades, and rising cash costs. Falling gold prices are compounding the problem for gold miners.

Foreign expansion

This is why many domestic Chinese companies are looking for foreign expansions. State-owned China National Gold Group Corp. talked to Barrick Gold (ABX) about potential partnerships.

Falling gold production in the long term should lead to increased gold prices. This will be positive for gold stocks’ prices—like Goldcorp (GG), Yamana Gold (AUY), and gold ETFs like the Gold Miners Index (GDX) and the SPDR Gold Shares (GLD).

Continue to Part 21

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