The CPM Gold Yearbook 2011

In 245 pages The CPM Gold Yearbook 2011 provides more statistics about gold than I even knew existed. (By comparison, the 2010 CRB Commodity Yearbook devoted five pages to gold.) If you are a gold bug and like numbers, charts, and in-depth analysis, this is a real find.

The book is a product of the CPM Group, a commodities market research, consulting, asset management, and investment-banking firm. The firm’s roots go back to a research group launched in 1971 at J. Aron and then, after J. Aron’s acquisition, continued at Goldman Sachs. In 1986 Jeffrey M. Christian formed an independent company “through a management buy-out of the commodities research group of Goldman, Sachs & Co.”

The yearbook is divided into eight chapters: review and outlook, investment demand, supply, official transactions, fabrication demand, China’s gold market, markets, and prices. What kinds of data are provided? In as close to a random selection as I can offer, here are a few samples: U.S. eagle gold coin sales (1986-Jan. 2011), near-term mine development projects, mine production by country (1984-2010) and global production since 1800, reported central bank gold reserves by country and region (1950-2010), Japanese gold fabrication demand by category—jewelry, electronics, dental/medical, other (1976-Feb. 12, 2011), and monthly Comex gold futures trading volume (1975-2010).

Even though the book is a data geek’s dream, it does far more than present raw data. Let me share two bits of analyzed data.

The average grade of gold mined has been steadily declining since the late 1960s. In 1968 it peaked at 12.49 grams per metric ton (g/t). In 2009 it reached its lowest level on record at 1.79 g/t and backed off only slightly in 2010 to 1.83 g/t. At the same time the cost of discovery has skyrocketed, from 51 cents an ounce in 1950 to $75.70 an ounce in 2009. (To be precise, this is a three-year rolling cost of discovery in 2009 dollars.) And production costs have risen for nine consecutive years.

We might say, no wonder gold is trading so high. But we would have reversed cause and effect. With respect to cash costs at gold mining operations, “There are two distinct sets of factors driving average cash costs higher and lower at mines. The first set of factors relates to the actual costs of inputs…. The second set of factors relates to the price of the underlying product of the mine. As the price of gold rises, miners work higher cost properties, on average. As the price of gold falls, they cut back at higher cost mines and the average production cost declines. … The correlation between gold prices and gold mining cash costs between 1980 and 2010 stood at 0.85.” (pp. 71-72)

Moving on to China, since 2007 the world’s largest gold mining country. Despite the rapid rise in gold mine output in China, “growth in gold demand was even stronger, driven by rising investment demand from individual investors who seek to hedge their inflation exposure. This led to anecdotal reports of surges in Chinese gold imports. … In 2010, Chinese investment demand accounted for 29.8% of total Chinese demand. In 2011, Chinese investment demand is forecast to rise 34.7% to 7.5 million ounces, fueled by continued investor interest for gold amid high inflation.” (p. 187, 200) So if you’re long gold, you can add the Chinese investor to your list of thank-yous.

For those interested in buying The CPM Gold Yearbook 2011, it is not currently available through Amazon but can be purchased for full price at the CPM Group Store. It comes in both hard cover and .pdf form; for a small surcharge you can have both. I would recommend opting for both formats because some of the tables in the hard cover edition are set in very small type.