Thursday, June 27

GOLD output in China, the world’s largest producer, is poised to rise about 10% this year to a record even as bullion prices slump, the nation’s mining association said.

Output might rise as much as 440 metric tonnes, said Wang Jiahua, executive vice-chairman at the China Mining Association. The country, which overtook South Africa as the largest gold producer in 2007, had an output of 403 tonnes last year, according to data from the Beijing-based group, an affiliate of the ministry of land and resources.

Bullion extended its drop this year to 23% and hedge funds cut bets on a rally by the most since February after the Federal Reserve said it might slow a bond-buying programme that had been pumping stimulus into global markets.

That has not deterred buyers in the second-largest economy, which may pass India as the largest gold consumer this year, as regulators in Beijing make investing in the precious metal easier.

"Gold’s role as a tool for wealth protection is still widely recognised in China," Mr Wang said.

"The global economy isn’t out of the woods yet — the European sovereign debt crisis hasn’t been solved and many are still wondering if Abenomics in Japan will work, so gold’s downside should be limited."

Production gained 12% in the first four months from a year earlier to 122.89 tonnes, according to the producer-funded China Gold Association, which publishes estimates monthly.

"We haven’t heard of any Chinese miners opting to lower production because of the gold rout," said Le Yukun, head of metals and mining research at BOC International China. "All we can see now is that the slump in gold prices will curb investor interest in gold-mining assets. Every 10% drop in gold prices is likely to reduce profits at Chinese gold miners by at least 20%," said Mr Le.

Gold was little changed at $1,283.07/oz in Beijing on Tuesday. The metal fell 6.8% last week.

Goldman Sachs Group cut its forecasts for gold through next year after selling quickened as investors priced in expectations of reduced asset purchases by the Federal Reserve.

In a report dated June 23, the bank cut its target for the end of this year to $1,300/oz from $1,435/oz and lowered its prediction to $1,050/oz from $1,270/oz for the end of next year.

Zijin Mining Group, China’s largest gold miner by market value, was seeking overseas investments as the slump in bullion had reduced valuations abroad, Lan Fusheng, vice-chairman at the company said last week. "We are looking at a number of projects."

These included three Australian projects that Barrick Gold put up for sale, Mr Lan said, adding that Zijin had not made an official offer yet because it is concerned about the quality of the mines and high production costs in Australia.

"Share prices of gold miners usually tend to fall faster and by a bigger measure than the underlying gold prices on the way down."


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