The gold mining industry is watching its production costs surge amid rising energy prices, inflation and increasing labor costs.
In 2012, Barrick Gold (NYSE: ABX), the world's largest primary gold producer, says its total cash operating cost could increase 13% to 22%. Meanwhile, Newmont Mining (NYSE: NEM), another key gold stock, expects to see a 6%-to-14% rise in costs applicable to gold sales.
The industry is hoping that rising gold prices will buoy the hike in production costs. An annual survey of industry predictions by the London Bullion Market Association forecasts gold could top $2,000 an ounce this year.
The outlook – made by 26 leading precious metals analysts from the world's largest bullion-dealing banks and trading houses – underscores bullish speculation of gold prices in the broader market.
All but two forecasters predicted that gold would surpass $1,900 an ounce this year, while 73% of those surveyed believe gold will top $2,000 an ounce.
Even though the expectations for gold prices are high, many of the larger gold mining stocks – including Barrick and Newmont – aren't taking steps to significantly increase output in 2012. That's partially because the gold industry has already ramped-up overall output over the past few quarters, and could be currently operating at near capacity.
World Gold Production Hits Record High in 2011
Global gold production increased nearly 4% last year, reaching an all-time high. According to the World Gold Council, miners pulled 2,810 tonnes of gold from the ground last year – that's nearly 100 million ounces, worth over $170 billion at current prices.
The surge in output was a clear response to rising gold prices, which approached $1,900 an ounce last year. But historic mine production levels did little to depress gold demand last year – particularly due to intense buying from the world's central banks, which purchased the highest annual tonnage in nearly a half century.
Central Banks Snap Up 15.5 Million Ounces of Gold in 2011
Global reserve banks were net sellers for decades. But over the past several quarters, gold sales from central banks have dried up. Meanwhile, the official sector in emerging markets is furiously buying the yellow metal to hedge the sovereign debt crisis in the United States and Europe.
Central banks were vigorously ramping up their gold reserves last year. In total, gold purchases from the official sector in 2011 swelled some 470% over the previous year.
Last year, the world's central banks stuffed a total of 440 tonnes (15.5 million ounces) of gold in their vaults last year. The World Gold Council says this was the biggest bullion purchase from the official sector since 1964.
Experts believe it's likely that central banks will continue buying gold, seeking diversification of their foreign exchange reserves.