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Gold Production Drops Sharply in Australia

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Gold supply took another hit, as output in Australia mine production slumped in the first quarter of this year.

Output fell 8% in Australia, according to data released on Sunday by Australian mining consultancy Surbiton Associates. Australian mines produced 71.5 tons in Q1. This was a drop from 77.5 tons in the previous quarter.

Analysts blamed bad weather for the slump.

This year heavy rain in Western Australia, which accounts for about three-quarters of Australia’s gold output, plus the effects of Cyclone Debbie in Queensland in late-March, played havoc with gold production at many operations across the country,” Surbiton director Sandra Close told Reuters.

Australia ranks as the world’s number two gold producing country behind China.

Mine output also dropped sharply in China in the first quarter. According to a rare report issued by the China Gold Association, the country’s first quarter gold production dropped  9.3% year-on-year, falling from 111.563 tons in Q1 2016 to 101.197 tons this year. Meanwhile demand surged 14.7% in the Asian nation.

Weather was not to blame for the drop in Chinese production. Analysts say the country is in the process of phasing out antiquated production facilities. The shutdown of old and unprofitable mines could mean a long-term drop in China’s gold output.

Interestingly, the Reuters report pointed out that many Australian mines have had to transition to more difficult mining techniques as the easier to reach gold near the surface has already been dug out.

Gold ore mined in Australia is often hauled from underground shafts to the lower levels of previously mined open pits, with wet weather slowing operations due to slippery haul roads.

While analysts primarily blame the weather for Australia’s Q1 production slump, it fits into a broader pattern of declining gold production. Worldwide production plateaued in 2016 and many analysts believe the world may be at or nearing “peak gold,” meaning  the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s.

Investors tend to focus on the latest economic and political news, the most recent Federal Reserve announcements, and current price trends when considering whether or not to buy gold.  But they should never ignore the most fundamental dynamic in any market – supply and demand. If we really are nearing peak gold, and global production continues to decline, it will undoubtedly put upward pressure on prices in the long-term if demand remains constant or increases. It’s simple economics.

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