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The single most important factor influencing the valuation of gold mining companies is the price of gold which has, historically been extremely volatile, the result of its sensitivity to a number of different factors. Some of those factors are interrelated while others are not (for example when currencies devalue (specifically the USD which is used in 85% of the world's foreign exchange transactions) that puts positive pressure on gold prices because the true value of gold (in relation to a basket of items) remains unaffected (like other true hedges against inflation). Other factors such as the demand for jewellery in India during festivals and a slowdown in global production (for some companies like AngloGold Ashanti prices need to be higher than $700 per ounce for gold production to be profitable) are also effective. Total production costs per ounce also play a role in how companies are valued by the market (cash costs were up 4.1% industrywide in the third quarter of 2010 to US$585/oz, some companies like AngloGold have costs higher than that while others like Eldorado have much lower costs making them highly profitable (and attractive); when cash costs are low mines are not at risk of closing. Even in times of economic uncertainty, gold and silver spot prices decline if there is a margin call (temporary selloff due to traders being required to meet call options). The top ten ETF's in the USA represent 2,200 metric tons of gold. As of September 23, 2010 all of the world publicly traded gold stocks had a combined market value of US$ 360 billion; that compares to US$ 19 billion 2000. Investing in physical gold remains popular internationally with even debt laden Greece adding to its reserves in 2010 (also, South Korea and Thailand).
European demand (118 tons or $6.2B worth) amounted to 33% of all global demand for gold bullion in the three months ended September 30, 2011, marking a new record for Europe (135% higher than last year's quarter). During the quarter, central banks purchased 148.4 tonnes of gold which is about 6.5 times as much demanded over the same period in 2010. Worldwide, demand was up 29%.
In 1980 South Africa accounted for more than half of global gold primary production (21.7 of 39.2 million ounces) with the USSR contributing about half of the rest (18.6 million ounces) and Canada, the USA and Brazil producing all of the rest except for 13.6% that came from the rest
The move over to mid summer from spring for silver options contracts to end moved spot silver lower especially when compared to gold the price of which was propped up by heavy demand by central banks in Russia, Mexico and Thailand among others (Canada's BNN interview with a silver anaylist from New York), Russia's central bank purchased about 1 million ounces of gold in the first four months of 2011 up from over 400,000 in the second half of 2010; Russia's last major purchase was in May 2010 when it bought 1.1 million ounces of gold during the month which represented 16.6% of global production that month. Speculators short on silver should boost the price come late June/early July. Altogether, in early to mid 2011 the biggest purchases were made by Mexico (99.1 tonnes), Russia (41.8 tonnes), South Korea (25 tonnes) and Thailand (just over 9 tonnes). South Korea's purchase, though not as excessive as Mexico or Russia was significant because it was the first time the nation bought any gold in 13 years. Gold makes up about 10% of all foreign reserves. (World Gold Council)
In the first quarter of 2011 (January to March) Chinese demand for gold (25% of global gold demand) exceeded demand from East Indians (23% of global gold demand) who were previous to that the largest consumers of gold (90.9 metric tons compared to India's 85.6 metric tons, China's represented a doubling over the previous year). That's after China demanded twice as much gold (in the form of bullion imports) as it produced in 2010 (700 tons against 351 tons) a significant feat considering it was by far the largest producer of gold that year. Those trends will ultimately lead to be a larger international role for Chinese companies like Zijin Mining Group who consider current market conditions ripe for foreign deals (expanding their gold reach outside of the country). In Shanghai it was rumoured that China might launch its own gold tracking Exchange Traded Fund which could spark derivative products demand.