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Australia’s Gold Exports

By Thuong Nguyen, Economist, Australian Government Department of Industry, Science, Energy and Resources

Published on September 8, 2020

THUONG NGUYEN is an Economist and Australian Government Gold, Aluminium, Alumina and Bauxite Analyst at the Office of the Chief Economist, Australian Government Department of Industry, Science, Energy and Resources, a position he has held since October 2015.

Thuong holds a Master of Public Policy from the Australian National University, a Graduate Certificate in Project Management from Charles Sturt University, and a Bachelor of Economics from the Western Sydney University.

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Gold has been one of Australia’s major exports since around 1850, when gold was first discovered. The country is now expected to overtake China as the world’s largest gold producing nation in 2021.

Australia’s gold exports have grown strongly over the past four decades. In quantity terms, the country’s gold exports are now a lot higher than the small amounts exported in the early 1980s, with 361 tonnes of gold exported in 2019, equivalent to A$23 billion (Figure 1).

Figure 1: Australia’s gold export volumes and values

Source: Australian Bureau of Statistics (2020); Australian Government Department of Industry, Science, Energy and Resources (2020)

The growth in export values has been driven by the rise in the US dollar gold price starting in the late 1970s – gold averaged US$1,392/oz. in 2019, up from US$148/oz. in 1977. Higher gold prices have prompted a rise in export volumes.

Gold prices are expected to continue to benefit from record low interest rates and the growth in the popularity of safe haven assets as the Covid-19 pandemic plays out. Strong gold prices and higher gold mine production are expected to drive Australia’s strong gold export earnings.

The value of Australian gold exports is forecast to increase by 15% in 2020–21, to a peak of A$29 billion. Gold is forecast to become Australia’ third-largest export commodity in 2020–21 and 2021–22, behind iron ore and LNG.

GROWING MINE PRODUCTION

Australia’s gold mine production has grown at an average annual rate of 6.6% since 1970, reaching 327 tonnes in 2019. The growth has been driven by a surging Australian dollar gold price. Australia’s gold mine production is forecast to continue to grow in the short to medium term, reaching a record of 391 tonnes in 2022 (Figure 2).

Figure 2: Australia’s gold mine production and Australian dollar gold prices

Source: LBMA (2020); Australian Government Department of Industry, Science, Energy and Resources (2020)

Unlike in Peru and Chile, so far in 2020, Australian gold mine producers have not been forced to suspend production due to the Covid-19 pandemic. However, some Australian miners have been forced to relocate workers and reorganise shifts to cope with Covid-19 travel restrictions.

Australia’s gold exploration expenditure was at a record high in 2019, up from just A$5.4 million in 1970 to A$1.1 billion in 2019 (Figure 3). Rising gold prices have been the major factor that is driving more expenditure on exploration programs.

Figure 3: Australia’s gold exploration expenditure

Source: Australian Bureau of Statistics (2020)

Australia is expected to overtake China as the world’s largest gold producing country in 2021, producing 384 tonnes. The Covid-19 outbreak is likely to reduce Chinese gold mine production by 8.2% in 2020 to 348 tonnes (Figure 4). Stricter environmental regulation is likely to keep Chinese gold production at this level for the next few years.

Figure 4: World’s major gold miners

Source: S&P Market Intelligence (2020); Australian Government Department of Industry, Science, Energy and Resources (2020)

MAJOR EXPORT MARKETS

In 2019, demand for Australian gold was largely dominated by the United Kingdom (UK), which accounted for nearly A$12 billion (51%) of Australia’s total gold exports, fuelled by fund flows into UK-listed gold exchange traded funds (ETFs) and high safe haven demand for gold bullion. Other important destinations for Australia’s gold in 2019 include China (with Hong Kong) — which accounted for A$7 billion (30%) of Australia’s total gold exports.

China was Australia’s largest gold export market for seven years (2012 to 2018), with export values increasing from A$5.6 billion in 2012 to around A$13 billion in 2018 (Figure 5). Hong Kong has been an important hub for Australian gold exports to Mainland China, as the Special Administrative Region’s close links to China, and the collaboration between the Shanghai Gold Exchange and the Chinese Gold and Silver Exchange, has increased physical gold trading activities.

Figure 5: Australia’s major gold export markets

Source: Australian Bureau of Statistics (2020)

Australia’s gold exports to Singapore have also grown over the last few years, accounting for around A$1.8 billion (7.6%) of the country’s total gold exports in 2019. Singapore is a growing market for Australian gold, due to its close links to ASEAN countries, and indirectly gold ETF trades on the Singapore Exchange (SGX).

India was Australia’s largest gold export market in 2009, at A$6.7 billion. However, exports have fallen since 2009, due to increased imported duties and increased gold refining capacity in India.

STRONG OUTLOOK

The Covid-19 pandemic has resulted in a sharp weakening in the global economy, which has helped drive interest rates down and boosted the US dollar gold price. Australian dollar weakness and low energy prices as a result of the Covid-19 pandemic have driven a strong rise in margins for Australian producers. Australian production and exports can be expected to be strong in 2020-21 and 2021-22.

In the medium term, as the world economy recovers, real bond yields could be expected to rise. Such a rise would be expected to result in fund flows out of gold. A lower gold price will likely reduce production and exports.

THUONG NGUYEN is an Economist and Australian Government Gold, Aluminium, Alumina and Bauxite Analyst at the Office of the Chief Economist, Australian Government Department of Industry, Science, Energy and Resources, a position he has held since October 2015.

Thuong holds a Master of Public Policy from the Australian National University, a Graduate Certificate in Project Management from Charles Sturt University, and a Bachelor of Economics from the Western Sydney University.

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