In six short years, the tables have turned for gold. In 2001, prices were roughly $270 per ounce with a production cost of roughly $160 per ounce.
Now in 2007, the production cost is nearly $400 an ounce and the price is over $800. Just as the outlook for gold was too gloomy in 2001, it is now probably too rosy. Much of the credit for gold's rise in the past six years can go to the consolidation that has taken place in the mining industry.
In early 2002, Newmont Mining won the right to buy Normandy Mining of Australia for $4.56 billion in cash and stock, becoming the world's largest gold producer. On August 5, 2003, the world's second largest producer, AngloGold Ltd., bought Ashanti Goldfields for $1.09 billion.
In 2001, Barrick Gold bought Homestake Mining to become the world's third largest gold mining company and then on October 31, 2005, announced its bid for Placer Dome, the world's fifth largest gold producer. This activity led to more disciplined production decisions at a time when the U.S. economy and the dollar stumbled.
The heaviest burden on gold in the past few years has come from central bank sales. In September of 2004, a new five year agreement limited sales to 500 tons per year. Potential sellers are Germany, France, Switzerland, Spain, and possibly Italy.
On June 14, 2007, the Swiss National Bank said that it will sell 250 tons of gold over the next two years. There is also talk occasionally that the International Monetary Fund may sell gold to provide relief to the creditors of some of the world's poorest countries.
On January 17, 2008, GFMS Ltd. said that they expect the price of gold to average $840 per ounce in the first half of 2008 and possibly reach $1,000 by the end of the year. They also said that world mine production was down 1% in 2007 and they expect a 2% increase in 2008.
In 2005, South Africa's gold production totalled 296.3 tons, the lowest output since 1923. On November 15, 2007, the World Gold Council said that world gold demand was up 19% in the third quarter from a year ago, due to investors seeking a safe haven from the subprime mortgage mess.