VI Gold Production and Prices
- International Monetary Fund
- Published Date:
- September 1959
TOTAL world production of gold, defined as excluding output in the U.S.S.R. and countries associated with it, increased by nearly 3 percent in 1958, to 30 million fine ounces or about 800,000 ounces more than in 1957. Valued at US$35 per ounce, output in 1958 was $1,049 million, compared with $1,021 million in 1957, $980 million in 1956, and $945 million in 1955. Production in 1958, which was a postwar high, was about 9 million ounces more than the 1945 postwar low, but it was about 17 percent (or 6 million ounces) less than the all-time peak attained in 1940, when production was valued at $1,264 million (Table 27).
|Union of South Africa||492||428||463||511||556||596||618|
These figures include estimates for data not available.
All-time peak production.
These figures include estimates for data not available.
All-time peak production.
About 78 percent of the increase in total output from 1957 to 1958 was due to the continued expansion of gold mining in the Union of South Africa. Output in that country in 1958 was 17.7 million ounces ($618 million), the highest ever recorded, and accounted for about 59 percent of total world production. In 1957 South African output had been 17.0 million ounces ($596 million) and in 1951, 11.5 million ounces ($403 million). The increase in 1958 was about half that recorded in each of the four preceding years; further moderate increases may be expected as the new mines in the Orange Free State and on the Far West Rand develop. The grade of ore is higher in these newer mines than in the older mines on the Witwatersrand, so that the yield per ton of ore mined has risen steadily in recent years, from 4.553 dwt. in 1956 to 5.000 dwt. in 1957 and to 5.228 dwt. in 1958. This increase, together with the steady expansion of the native labor force, which reached 329,000 at the end of 1958, helped to make 1958 an outstanding year in the history of gold production in the Union of South Africa.
In Canada, output increased in 1958 by $4.1 million, to $158.8 million, about the same as the postwar high of 1955. Increases of about $1.5 million were recorded in Ghana and the Philippines, of about $0.6 million in Australia, and of about $0.5 million in Southern Rhodesia. Small increases elsewhere in 1958 were approximately equal to the small decreases recorded in India and Mexico.
High production costs continue to be a matter of concern to the gold mining industry in most major gold producing countries. Where possible, mines have shifted from the production of lower grade to that of higher grade ore; some mines are unable to make this shift, and therefore have had difficulty in maintaining a reasonable margin of profit. In South Africa, indeed, the rise in working costs in 1958, from 45s. 4d. per ton of ore milled to 46s. 11d., was not so great as in 1957, and the total profits of South African gold mining again increased. In 1950 South African working costs had been 29s. 7d. per ton and in 1956, 42s. 11d. The average working profit from gold per ton of ore milled, which had been 14s. 4d. in 1956 and 17s. 6d. in 1957, rose to 18s. lOd. in 1958. Likewise, the combined working profits from gold and uranium, which had risen from £73.1 million in 1956 to £91.1 million in 1957, increased further, to £99.1 million, in 1958. Working profit from gold rose by £3.5 million, to £61.4 million, and profit from uranium by £4.4 million, to £37.7 million. Dividends paid by all producers of gold and uranium during 1958 amounted to £43.4 million, compared with £37.6 million in 1957 and £29.1 million in 1956. The high dividend yields on gold shares, as well as the generally favorable tax status accorded by South Africa to foreign investors, encouraged further foreign investment in the industry. But, while the total profitability of the gold mining industry in South Africa reached an all-time peak in 1958, 21 of the 32 nonuranium producers had working profits smaller than in 1957. The South African Minister of Mines stated in Parliament last year that his Department regarded 14 mines as being in fact marginal mines. These mines employed roughly one quarter of the total labor force of the industry, both European and native. The Minister stated that the Government could not do much to promote the establishment of industries within the municipal areas of towns likely to be affected by the closing of marginal gold mines, but that the local authorities were doing everything in their power to encourage such a movement.
The gold subsidy programs of the Governments of Australia, Canada, and Colombia, discussed in previous Annual Reports, are still in operation. During the past fiscal year of the Fund, Canada modified its subsidy program, and the Government of Fiji adopted measures to give relief to its only gold producer. The Fund deemed both of these programs, described below, to be consistent with the objectives of its statement of December 11, 1947 on gold subsidies.
In August 1958, the Government of Canada amended the Emergency Gold Mining Assistance Act to extend the subsidy authorized by that Act through the calendar years 1959 and 1960, and to provide for a 25 percent increase in the amount of assistance for the years 1958, 1959, and 1960. The basic structure of the subsidy formula remained unchanged. Under this formula, the subsidy provided for eligible mines is equal to two thirds of the excess of the costs of production over Can$26.50 per ounce, up to a maximum of Can$ 12.33 per ounce. The subsidy applies to two thirds of the output of the assisted producers. The increase of 25 percent in the amounts payable to individual mines is intended to offset a continuing rise in production costs and the effects of the free exchange rate of the Canadian dollar. The. subsidy is paid to mines that produce only gold and that have production costs high enough to justify assistance; it is not payable to base metal mines which produce gold as a by-product. Gold mines ineligible for assistance and base metal mines are permitted to sell their gold on the free market. Mines receiving assistance are required to sell their output to the Royal Canadian Mint for the equivalent in Canadian dollars of US$35 per fine ounce. Since the Canadian dollar has been at a premium over the U.S. dollar in recent years, the price paid by the Mint for gold has been proportionately reduced; during 1958 it fluctuated between Can$33.58 and Can$34.62 per fine ounce. The total amount of subsidy paid for the year ended March 31, 1959 is estimated at Can$11.6 million, compared with Can$8.6 million for the previous year.
The United Kingdom, which has accepted the Fund’s Articles of Agreement in respect of Fiji, consulted the Fund in February 1959 with regard to a plan of financial assistance to Fiji’s only gold producer, under which the amount of subsidy would be related to the economic need of the mine. An annual subsidy of £150,000 is to be paid to the mining company in each of the years 1958-59, 1959-60, and 1960-61, on condition that the company shall carry out capital development, costing an equal or greater amount, on mine buildings, plant, and underground workings (exclusive of staff or employees’ housing) during the period of the subsidy; the company shall be required to refund to the Government all sums received by way of subsidy in excess of the cost of such capital works; and in the event of production in any one year falling below 75,000 ounces, the subsidy shall be reduced below £150,000 at the rate of £2 per ounce of the shortfall.
The Fund has approved similar plans involving subsidy payments to individual mines where the assistance was related to the economic need of the mines and the object of which was to sustain a volume of production close to the current production and not to stimulate increased output. Fund members considering the introduction of subsidy schemes to prevent a reduction in gold output, as well as those which desire to amend existing subsidy programs, have an obligation to consult with the Fund on the measures to be introduced.
The economic background of the important shifts which took place during 1958 in the distribution of the world’s gold reserves has been sketched in an earlier chapter of this Report. The outstanding developments were the increase of $3.1 billion in the gold holdings of the major industrial countries of Western Europe, and the decline of $2.3 billion in U.S. gold holdings, with the rest of the Western European accumulation coming from new production and sources other than the United States.
The stock of gold held by the monetary authorities in the world (excluding the U.S.S.R. and the countries associated with it, but including the Fund and the Bank for International Settlements as well as the European Fund, the successor to the European Payments Union) is estimated to have increased during 1958 by about $740 million, compared with increases of about $735 million in 1957, $550 million in 1956, and $215 million, a postwar low, in 1951. Gold sales in Western European countries by the U.S.S.R., estimated at about $210 million, were equivalent to more than one fourth of the increase in 1958. Since the value of last year’s gold output outside the U.S.S.R. was $1,049 million, the total increase in the amount of gold that became available to the rest of the world was thus about $1,260 million. The amount of gold absorbed by the arts and industries or by private hoards in 1958 may therefore be estimated at about $570 million, which is not very different from the estimate for 1957.
At the end of 1958, world monetary gold reserves—as defined above, and without taking account of the adjustment of BIS holdings suggested in Chapter III—amounted to approximately $39.9 billion, $5.2 billion more than at the end of 1948 and $13.9 billion more than at the end of 1938, an increase of about 53 percent during the twenty-year period. Of the increase between 1938 and the end of 1958, about $6 billion went to the United States, $4 billion to Continental European countries, $1.8 billion to international monetary organizations, $1 billion to Latin American countries, $900 million to Canada, and $200 million to the United Kingdom and other sterling area countries. Of more significance are.the shifts in the actual holdings of individual countries and in the proportions held by them of the total gold reserves of the world. The redistribution of gold holdings between 1938 and 1948 and between 1948 and 1958 is shown in Table 28. The holdings of the United States increased from $14.6 billion (56.1 percent of the world’s monetary gold) at the end of 1938 to $24.4 billion (70.3 percent) at the end of 1948, but declined to $20.6 billion at the end of 1958; at 51.6 percent, the U.S. percentage of the world’s total holdings was then slightly less than in 1938. The holdings of Continental European countries, which had declined by $2.6 billion during and after World War II, rose by $6.5 billion during the second ten-year period, to about $10.1 billion at the end of 1958 (25.2 percent of the world’s monetary gold, compared with 23.5 percent in 1938). While the holdings of the United Kingdom and other sterling area countries rose by $1.4 billion during the second ten-year period, their percentage of the world’s gold stocks declined from 13.1 percent at the end of 1938 to 9.1 percent at the end of 1958. The share of the “Rest of the World” declined from 3.8 percent to 2.6 percent during the twenty-year period. The aggregate gold holdings of Latin America doubled during the first ten-year period, to $1.6 billion at the end of 1948, and increased during the second ten-year period by about $110 million. Substantial reductions in the gold reserves of Argentina and Cuba during the second ten-year period were more than offset by large increases in Mexico and Venezuela and smaller increases in some other countries.
|of U.S.||of world||of U.S.||of world||of U.S.||of world|
|International monetary agencies1||14||—||1,472||4.2||1,796||4.5|
|United Kingdom and sterling area||3,411||13.1||2,187||6.3||3,605||9.1|
|Continental European countries||6,100||23.5||3,520||10.1||10,050||25.2|
|Latin American countries||710||2.8||1,620||4.7||1,730||4.3|
|Rest of world2||990||3.8||1,090||3.2||1,024||2.6|
International Monetary Fund, Bank for International Settlements, and European Fund.
Excluding the U.S.S.R. and associated countries.
International Monetary Fund, Bank for International Settlements, and European Fund.
Excluding the U.S.S.R. and associated countries.
The decline of $2.3 billion in U.S. gold reserves during 1958 contrasted sharply with the increase of $1.1 billion during the preceding two years. It was the largest outflow of gold from the United States in any single postwar year, the second largest, $1.7 billion, having been recorded in 1950. Other countries whose gold reserves declined in 1958 were Argentina, Canada, Cuba, Egypt, Mexico, Peru, Spain, and Sweden, the aggregate decrease in these countries amounting to about $250 million. EPU gold stocks fell by $128 million, to $126 million, which was turned over to the European Fund when the European Monetary Agreement became effective in December 1958. The largest increase in monetary gold reserves during 1958 was in the United Kingdom, where gold holdings increased by an estimated $1,250 million, to about $2,850 million. This increase exceeded by about $510 million the estimated total increase in the official gold holdings of the world as a whole. The second largest increase was in Italy, where gold stocks rose by $634 million, to $1,086 million, after having increased by $114 million in 1957. Other increases in 1958 were $355 million in Belgium, $306 million in the Netherlands, $207 million in Switzerland, $97 million in Germany, $91 million in Austria, $36 million in Australia, $32 million in Portugal, $31 million in Japan, $14 million in Iraq, and $10 million in Colombia. The increase of $152 million, to $1,332 million at the end of 1958, in the gold holdings of the International Monetary Fund was mainly the result of repurchases, subscriptions, and charges paid in gold by Western European countries and, to a smaller extent, by other members of the Fund.
The decline in U.S. gold reserves continued during the early months of 1959. From January 1 through April 30, it amounted to $224 million, most of which corresponded to substantial increases in Japan and in Western European countries. On April 30, 1959, U.S. gold holdings amounted to $20.4 billion, or about 51 percent of the world’s monetary gold stock.
Of the total gold holdings at the end of 1958 of the monetary authorities of the world (as described above), $29.2 billion, or about 75 percent, was physically located in the United States. Gold held under earmark by the Federal Reserve Bank of New York for the account of foreign central banks and governments and international banking institutions rose by $2 billion during the year, to about $8.5 billion. Many central banks and governments find it to their advantage to have a portion of their gold reserves in the United States to meet current and future requirements, since the United States is prepared to buy and sell gold for official monetary purposes at a fixed price in unlimited amounts. Transfers on official account in 1958 between earmarked gold accounts held by the Federal Reserve Bank of New York amounted to approximately $4.1 billion. In addition to purchases from and sales to the United States, there were movements of gold between foreign accounts as a result of monthly EPU settlements and of gold transactions facilitated by the services of the Bank for International Settlements and the Fund. The volume of gold movements between official accounts negotiated in the London market was again considerable, though it was probably less than in 1957.
Gold Markets and Gold Prices
In 1958, the increased demand for gold by central banks exceeded by a wide margin the supply available from new production and from sales by; countries other than the United States. The difference was made good by purchases from the United States, where during most of the year the price was lower than in London. The demand in the London market was met, for the most part, by sales of newly mined gold. In view of the strength of sterling, it was not necessary as in previous years for the Bank of England to sell gold to acquire U.S. dollars; instead, it was a net buyer of substantial amounts of gold. Thus the dollar price of bullion on the London market (converted at the sterling-dollar rate of exchange at the time of the daily fixing) remained above $35 per fine ounce during nearly the whole of 1958 and in the early months of 1959 (Chart 1). From May through December 1958 the monthly average dollar price of gold in London was above the U.S. selling price of $35.0875 per fine ounce. From time to time, however, central banks bought gold in London, especially when gold was available in both London and New York at the same price, or when the London price was less than the U.S. selling price. These periods were short, and during the greater part of the year substantial purchases of gold were made in New York. Some new arrangements have been made to facilitate purchases of gold by private citizens; in Canada, for example, one commercial bank offered for fixed fees its facilities for storing gold against which the bank issues “gold certificates,” and the Toronto Stock Exchange announced that gold bullion would be listed for trading as from February 3, 1959.
Chart 1.U.S. Dollar Equivalent of Price of Gold in London Market, Monthly Averages, March 1954-April 1959
During the past financial year, several countries took further measures to relax restrictions on the sale of gold and the movement of gold through their territories. The most significant steps were taken in connection with the adoption of external convertibility by 14 European countries in December 1958, which is described in detail elsewhere in this Report. At that time, the United Kingdom announced that as from December 29, 1958 dealings in gold would be permitted against “external” sterling or any foreign currency. On March 20, 1959, restrictions on forward dealings in gold were removed. Previously, any transaction that was not a spot transaction, that is, with delivery and payment within two working days, required the approval of the Bank of England. It is understood that, for the time being, the pre-1939 practice of having a daily fixing of forward gold prices, as there is for spot transactions, will not be revived.
In June 1958, a new government loan was offered in France, carrying interest at 3½ percent and with repayments, which will begin in 1970, related to movements in the Paris market price of the napoleon. At the same time, in order to encourage the repatriation of foreign assets, the law of 1948 which prescribed a fine of 25 percent on reimported capital was abrogated, provided that repatriation took the form of gold which was to be promptly offered for sale on the Paris gold market. It has been estimated that through these operations the Bank of France acquired approximately 140 tons (4.5 million fine ounces) of gold and that of this amount some 3 million fine ounces came from dishoarding in France.
In the Federal Republic of Germany the last limitations on domestic trade in uncoined gold and gold coins were removed on January 26, 1959, and the import and export of gold and gold coins were made completely free. However, purchases and sales of gold, other than by the monetary authorities, are still subject to the general 4 percent turnover tax. In April 1959, the Minister of Finance of the Union of South Africa announced that the South African Reserve Bank would sell gold bars to private purchasers outside the sterling area at a price corresponding to that on the London market. The bars to be sold are of the regular standard size of 400 fine ounces each, and the minimum individual purchase is fixed at 25,000 fine ounces. The Minister also stated that these sales were intended to encourage private ownership of gold, and that buyers may either leave the gold for safekeeping with the South African Reserve Bank or have it shipped to any country.
London bullion dealers continued to engage in gold transactions on a world-wide basis during the year. The Union of South Africa and other sterling area producers, together with the U.S.S.R., continued to be the main source of most of the fresh supplies in the London market. When the price of gold exceeded $35 per fine ounce, most of the monthly EPU settlements were made in dollars and no longer contributed substantially, as they had done in previous years, to the market turnover of gold. Private operators purchase gold in London for export to the Middle East and the Far East; the estimate of the net absorption of gold by the arts and industries and by private hoarders in 1958 suggests that purchases on private account by nonresidents of the sterling area must have been on a comparatively small scale. The increased central bank demand for gold, together with the strong demand from the Middle East which was associated with the political uncertainties in that area, caused the price to remain firm when supplies were short in London. The price of bar gold in sterling at fixing increased from 249s. 2¾d. per fine ounce on May 1, 1958 to 250s. lid. on July 18, 1958. It did not fall below 250s. per fine ounce until January 8, 1959, after which a downward tendency was maintained, with the price falling to 248s. ll¾d. on April 3, 1959. At the end of April it was quoted at 249s. 3V2d., equivalent to $35.09¼ at the day’s dollar exchange rate. The fixing price in London rose to the equivalent of $35.14 per fine ounce on October 8, 1958, the highest dollar equivalent at the fixing since the reopening of the London market in March 1954. When supplies became more plentiful, partly as a result of U.S.S.R. sales in late 1958 and early 1959, the price at fixing declined below the equivalent of the U.S. selling price at the end of the year, and on March 18, 1959 fell to $35.04¼. Subsequently, it rose to $35.10 on April 20 as a result of renewed central bank demand.
The prices at which bar gold is traded directly for U.S. dollars in other markets deviated by only a few cents from the London dollar price during the year under review. In Zurich, for example, it was usually quoted a few cents per fine ounce above the London price, moving between the high of $35.17½ on July 17, 1958 and the low of $35.06¾ on March 16-17, 1959. On April 30, 1959 the price was $35.11½ per fine ounce.
In Paris, the price of bar gold began to fall early in 1958, following the anti-inflationary measures adopted in December 1957, and this movement continued throughout most of the year, partly in response to the actions taken in June 1958, which have been described above. The rate quoted on October 13, 1958 was F 512,000 per kilogram. At the time of the devaluation of the French franc, the price of bullion advanced sharply, and on January 19, 1959 it was F 573,000 per kilogram. From January 21 to April 30, 1959, the price of bar gold remained within a narrow range, between F 568,000 and F 563,000 per kilogram, compared with F 555,000, the equivalent at the par value. During the period May 1-December 27, 1958, the U.S. dollar equivalent price of bullion fluctuated between a high of $36.72 per fine ounce on May 19 and a low of $35.85 on August 27. After the devaluation of the franc, this price remained within a narrower range of the London dollar price, moving between a low of $35.09 per fine ounce on December 29, 1958 and a high of $35.86 on January 19 and April 27, 1959. On April 30, 1959, it was equivalent to $35.74.
In Brussels, the U.S. dollar equivalent price of gold remained within a narrow range of the price in London from May 1 to December 31, 1958, moving between $35.37 and $35.14. In January 1959, it fluctuated more widely because of market technicalities; and from February 2 to April 30, 1959, it moved between $34.94 and $35.25 per fine ounce. In Milan, the price was slightly higher, fluctuating between $35.20, the price in the last week of August 1958, and $35.77 in the middle of January 1959; at the end of April, it was $35.33 per fine ounce. Because of the political unrest in Lebanon, the U.S. dollar equivalent price of bullion in Beirut fluctuated more widely and at a slightly higher level than in the previous year. On April 30, it was quoted at $35.19 per fine ounce. In Hong Kong, the U.S. dollar equivalent price of gold increased from a low of $38.03 on June 6, 1958 to a high of $38.68 on April 7, 1959; at the end of April, it was quoted at HK$252.50 per tael (equivalent to $38.65 per fine ounce at the day’s T.T. Hong Kong dollar rate for the U.S. dollar).
In view of the rigid restrictions imposed on imports and exports of gold in India, the price of gold on the Bombay market is determined principally by local supply and demand conditions and is subject to wide fluctuations, depending upon the interplay of various economic forces and, to some extent, political and other factors. The price of gold rose from a low of Rs 104.19 per tola (equivalent to $58.35 per fine ounce at par value) on July 10, 1958 to a new high of Rs 125.31 per tola ($70.17 per fine ounce) on April 30, 1959, which exceeded the all-time peak of Rs 121.00 ($97.78 per fine ounce at the predevaluation rate of Rs 3.3 per U.S. dollar in August 1948). The uptrend in the price of gold that developed in October 1958 was attributable partly to the imposition of martial law in Pakistan, which checked the clandestine import and export of gold, and action taken by the Indian Government to curb smuggling.
With a view to stopping the leakage of foreign exchange through the illegal export of rupee currency to the Persian Gulf area in payment for illicit gold imports, the Reserve Bank of India Act was amended in April 1959 to authorize the issue of special rupee banknotes for circulation in that area. These notes will not be legal tender in India; otherwise, they will be in the same position as the standard rupees formerly circulating in the area which were to be replaced and repatriated by June 22, 1959. The new notes will be freely convertible into sterling through banks in the Persian Gulf area; they may also be exchanged for Indian currency at the offices of the scheduled banks in India.
In the markets for gold coins, the prices of the sovereign and the napoleon continued in 1958 the gradual decline that began in 1957. The decline in the price of the sovereign is attributed to the release by the United Kingdom during 1958 of a substantial quantity of sovereigns for sale abroad. At the end of April 1959 the price of the sovereign in Paris and Brussels was lower by about $0.90 and $0.20 per fine ounce, respectively, than at the end of April 1958; in Beirut it was about the same as a year earlier, and in Milan it was about $0.30 higher. In Paris it was equivalent to about $40.20 per fine ounce, in Milan to $40.70, in Brussels to $39.85, and in Beirut to $40.85. From the end of April 1958 to the end of April 1959, the price of the napoleon declined in Paris by the equivalent of about $7 per fine ounce, to about $38.70; in Milan, by $4.50, to $39.50; and in Beirut, by $2.00, to $39.20.
Gold Transactions Service
Since the inauguration of the Fund’s gold transactions service in March 1952, the central banks of 24 member countries and 3 international organizations have effected purchases and sales of gold through the facilities provided by the Fund. During most of the year under review, central bank requirements were met, in large part, by direct purchases of gold from the United States, since the London dollar price of gold exceeded the U.S. selling price of $35.0875. However, the Fund was able to facilitate the completion of 9 transactions totaling about $61 million during the year. The total number of transactions since March 1952 is 95, amounting to about $731 million.