Un­der­stand­ing the gold mar­ket

‘Re­cently, gold has been driven higher by a short cov­er­ing rally. In the medium to longer term, how­ever, it will be in­flu­enced both by moves in real US in­ter­est rates and the ex­tent to which the Fed is suc­cess­ful – or not – in re­duc­ing the size of its bal

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The price of gold has re­mained roughly flat at US$1,200 per troy ounce since Au­gust af­ter fall­ing from highs of US$1,360 in Jan­uary 2018, that is un­til spot prices spiked, reach­ing over US$1,230 per troy ounce in early Oc­to­ber. De­tails here.

Gold prices are tra­di­tion­ally af­fected by geopo­lit­i­cal volatil­ity and in­ter­est rates hikes, which push in­vestors to gold as a safe haven from fiat cur­ren­cies. Most re­cently, in the af­ter­math of the global fi­nan­cial cri­sis and un­der the in­flu­ence of world­wide quan­ti­ta­tive eas­ing, th­ese fac­tors pushed gold to a record high of al­most US$1,900 per ounce in Septem­ber 2011.

At the mo­ment, gold is caught in the con­flict­ing cross-cur­rents of con­tin­u­ing Fed in­ter­est rate hikes in the US at the same time as the In­dian Di­wali fes­ti­val cre­ates its tra­di­tional, sea­sonal up­cy­cle for gold.

As for min­ing, Bar­rick and Rand­gold Re­sources’ (RRS) merger has cap­ti­vated the news. Bar­rick has strug­gled since 2008, as ev­i­denced by Rand­gold’s share price be­ing where its larger com­peti­tor’s was 10 years ago and vice versa. Some see this as a vin­di­ca­tion of Rand­gold’s fun­da­men­tal and ge­o­log­i­cal ap­proach to min­ing com­pared with the Gold­man Sachs-style cor­po­rate cap­i­tal­ism of its erst­while ri­val.


Now thought to be cre­ated by the merger of two neu­tron stars, most of the gold on earth can be found in 32 com­monly recog­nised de­posits, which can be sep­a­rated into ex­oge­nous and en­doge­nous types.

En­do­genic gold oc­curs be­neath the sur­face of the earth. Some of the most com­monly mined en­do­genic gold lodes are por­phyries (a type of ig­neous rock) as well as in skarns. Skarns are ge­o­log­i­cal for­ma­tions cre­ated when rocks high in car­bon­ates like dolomite or lime­stone are in­vaded by a high­tem­per­a­ture hy­dro­ther­mal so­lu­tion.

Ex­o­genic gold is formed on the earth’s sur­face and can be found in sands and gravel. Here, wind and wa­ter erodes rock for­ma­tions,

cre­at­ing sands, grav­els and sed­i­ments in which heav­ier el­e­ments like gold set­tle. De­posits of en­do­genic gold are, for the most part, found in streambeds, riverbeds and flood­plains.


Some ex­o­genic gold can be pro­cessed through smelt­ing the metal to­gether with flux, but hard rock ores re­quire fur­ther pro­cess­ing. First, the ore is crushed into a slurry, and then typ­i­cally treated via cyanida­tion to dis­solve the gold into a liq­uid al­ka­line cyanide so­lu­tion, leav­ing the rock be­hind. The gold is then re­trieved from the cyanide so­lu­tion by adding ac­ti­vated car­bon, a ma­te­rial to which gold ad­heres.

One for­mer method of gold ex­trac­tion is amal­ga­ma­tion via mer­cury, but it has fallen out of favour among com­mer­cial min­ers as a re­sult of the detri­men­tal health and en­vi­ron­men­tal ef­fects but is some­times pop­u­lar with ar­ti­sanal op­er­a­tors. Af­ter form­ing the amal­gam, the mer­cury is then boiled away, leav­ing be­hind gold. At this stage, the gold may be cast into a doré bar, con­tain­ing 8090% gold plus a range of other met­als, such as sil­ver, cop­per and iron.


Either the Miller or Wohlwill process is used to re­fine the doré bars. The Miller process heats the metal, then blows gaseous chlo­rine over the mix­ture.

The im­pu­ri­ties bind with the chlo­rine to form com­pounds, which sep­a­rate into eas­ily re­mov­able lay­ers on the sur­face of the molten gold to pro­duce 99.95% pure gold.

To pro­duce the high­est grade of 99.999% pure gold, the Wohlwill process is used. Here, un­pu­ri­fied ore is fash­ioned into an an­ode, and pure gold into a cath­ode. Elec­tric­ity is then passed through a mix­ture of gold chlo­ride and hy­drochlo­ric acid. The elec­tri­cal cur­rent col­lects the gold at the cath­ode, while im­pu­ri­ties are left be­hind.


Al­though South Africa was by far the world’s largest pro­ducer of gold for most of the 20th cen­tury, it was over­taken by China in 2007, hav­ing fallen to sev­enth po­si­tion from its pre­vi­ous heights. Much of China’s gold is pro­duced by mines in Shan­dong Province. It is also the world’s lead­ing gold con­sumer.

Aus­tralia is the sec­ond largest pro­ducer, with around two-thirds of its gold be­ing pro­duced from Western Aus­tralia, fol­lowed by Rus­sia, the US, Canada, Peru and then South Africa. In terms of ex­plo­ration, how­ever, be­tween 2006 and 2016, West Africa was a hotspot, at­tract­ing the largest ex­plo­ration bud­get in the world af­ter Canada and Aus­tralia and ac­count­ing for the most equity raised for ex­plo­ration of any re­gion bar Canada.


Bar­rick Gold was the top gold pro­ducer in 2017, beat­ing New­mont for the top spot and ahead of An­gloGold Ashanti, Gold­corp and Kin­ross. Even so, the gold gi­ant cut its pro­duc­tion from highs of 7.7Moz in 2010-11, to 5.32Moz in 2017. By com­par­i­son, New­mont grew its pro­duc­tion by 7.6%, while An­gloGold Ashanti grew its pro­duc­tion by 3.4% along­side Polyus at 9.4%.

At the same time, Newcrest Min­ing, in sev­enth po­si­tion and Gold­corp in fourth, re­duced their pro­duc­tion by 6.9% and 10.4%, re­spec­tively, for the year.

As for mid-tier com­pa­nies, West Africa has been an at­trac­tive propo­si­tion. Among them, Canada-listed En­deav­our Min­ing has fol­lowed through on its ag­gres­sive West African strat­egy, de­vel­op­ing its Houndé and Ity CIL mines. So has Teranga Gold, with its Golden Hill and Gourma projects.

In the same re­gion, Nexus Gold Corp is highly in­volved in gold ex­plo­ration in Burk­ina Faso, while Galane Gold plans to restart its Galaxy mine in South Africa by the first quar­ter of 2019.

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