Latin America is a key participant in the gold market, accounting for approximately 20% of world mine production, according to figures from the regional industry association Sociedad Interamericana de Mineria (SIM). In addition, the region’s position will be strengthened by multibillion dollar mine investments in construction or under study.
Peru boasts a portfolio of gold projects estimated to be worth US$8.25 billion, of which more than half corresponds to the controversial Conga project. More than US$17 billion will be invested in gold projects in Chile over the current decade. One of the largest and most advanced projects is the Pascua-Lama mine on the border with Argentina. Colombia expects to produce 60 tons this year and plans to continue expanding, while Ecuador sees gold as critical to the development of a large-scale mining industry.
This bonanza reflects the sharp rise in the price of gold over the last decade to hit historic highs last September. The significant increase in spending on mine exploration is another consequence. According to the latest figures from the Metals Economic Group, gold exploration hit US$8.2 billion last year, accounting for 45% of exploration for non-ferrous metals.
For these reasons, the gold price will be critical to the future of many of these projects.
The outlook for this year, according to the latest report from CPM Group, is positive. Although it is unlikely that the gold price will hit the peaks seen in 2011, the average price for the year will be higher.
Central banks are among the most important participants in the gold market. In recent years, they have become net buyers of the metal, helping to support recent high prices. This is especially true of banks in developing countries.
The precious metals analyst Jeffrey Nichols highlights the role they play in stabilizing the gold price. In his opinion, the market is not fully aware of how important central banks have been and continue to be. “Much of the gold bought by central banks is for long-term reserves,” he warns. It will not return to the market after a few days, weeks, or months as occurs with investors who buy or sell positions based on changes in commodity prices and the economic climate.
As a result, with their purchases, the Central Banks help to provide stability to the gold price, limit future fluctuations related to supply and support the continuation of favorable market conditions for years to come.
Given the investments being made and the clear commitment of many South American governments to turn the mining industry into a key part of their countries’ development strategy, authorities, executives and specialists throughout the region should appreciate and follow with greater interest the role played by central banks.
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