JEFFREY CHRISTIAN There needs to be a more analytical examination of likely trends in mine production, including closures and new projects coming into production
Given the lack of transparency and understanding of basic trends in the gold market, the 2015 Investing in African Mining Indaba is a good opportunity to bring some critical information to the attention of market participants, says New York-based research and consulting firm CPM Group.
CPM Group MD Jeffrey Christian says gold market players are realising the extent to which they were making business and investment decisions based on faulty information.
“With gold prices having been weaker than many market participants and observers had expected in 2014, and with the mining industry continuing to suffer from lower gold prices, there has been . . . greater . . . introspection regarding the gold market on the part of mining executives, investment managers and others,” he states.
Critical topics regarding the gold market that should or could be discussed at the indaba include ways of obtaining better data on mining costs and on the increased gold mining capacity over the past few years, suggests Christian. He adds that market decisions are often affected by misinformation, misunderstanding, or a complete lack of information and understanding.
“There needs to be a more analytical examination of likely trends in mine production, including closures and new projects coming into production, as there is a great deal of misunderstanding and misinformation about the likely future trends in gold production,” he says.
This, he says, is further exacerbated by a lack of understanding regarding fabrication demand for gold, investment demand trends, the amount of gold stored in Europe and on other continents, world gold-trade trends and central bank gold holdings.
In light of this, and paired with an expected increased volatility in the gold market in 2015 – internationally and in Africa – key focus areas at the indaba should include the outlook for gold prices and gold mining trends, as well as trends in central bank gold activity, fabrication and investment demand and international trade flows of gold, Christian says.
“The price outlook in particular is critical for mining companies to accurately gauge the value and worth of future mining investments and developments, which are central to overall African economic development,” he points out.
Information Irregularity
“The gold market is significantly asymmetrical – with an unbalanced flow of information,” Christian notes, highlighting the lack of basic information and knowledge about how the gold market works, which has contributed to the misallocation of resources in the gold mining industry over the past several years.
He suggests that this absence can be attributed to several factors, including the desire for secrecy of gold investors and others regarding information about gold. He also believes that there are no advantages for many gold market participants, including refiners, investors and fabricators associated with disclosing information.
“The opacity in the gold market enables those with superior knowledge of how the gold market works and what the current trends are to benefit from others’ lack of that knowledge.”
Further, if finance executives at mining companies do not understand basic financial aspects of the gold market, how gold trades and how the gold market prices options, it is easier for their trading counterparts to receive outsized prices for their financial services, he notes.
He highlights that CPM’s talks at events, such as the indaba, typically aim to expose mining executives, investors and others to facts about the gold and other commodity markets of which they might be unaware, adding that the company has a good record of projecting future price, supply and demand trends.
Christian will participate in a panel discussion about the outlook for commodities and gold for the year ahead and beyond at the indaba, which will take place at the Cape Town International Convention Centre from February 9 to 12.
“The presentation may assist mining executives, institutional investors and others in realising that the gold market is quite different from what they perceive it to be – that parts of it are much more straightforward . . . while other parts are more complex,” he concludes.