Gold bars. Picture: REUTERS
Gold bars. Picture: REUTERS

ABOUT a quarter of the gold flowing into India is coming through irregular channels given the "anti-gold" stance adopted by the government of one of the world’s leading gold markets, Thomson Reuters GFMS metal analytics global head Philip Klapwijk said on Monday.

Global gold supply is forecast to rise to 4,601 tons this year from 4,484 tons last year, Mr Klapwijk said at the Mining Indaba in Cape Town. South Africa accounted for just 7% of global supply and any disruptions to its production from strikes or other events had no bearing on the price of the metal, he said.

Jewellery makes up about 85% of demand for gold, apart from the manufacturing of gold coins.

"Comparing demand last year with 2011, we see this rather strange phenomenon that India was the standout for the country where demand collapsed the most. In other parts of the world, they shrugged off the 6% increase in gold prices rather well and in other parts we saw growth in jewellery demand," Mr Klapwijk said. "India is going to face a difficult year on some fronts."

He added: "You have a government that is clearly anti-gold in India and it is using the duty system to try to hold back demand."

Last month, the Indian government raised the duty on gold imports to 6% from 4%.

"This is stimulating the smuggling of gold into the country. It may be that at least a quarter of the gold coming into India is coming through unofficial channels," Mr Klapwijk said.

The source of scrap metal, which comes primarily from jewellery recycling, generally slowed throughout the world compared with 2011. "The big exception was India, where much higher rupee prices for gold (were) teasing out a much higher level of scrap," he said.

Mined gold production peaked in 2001 and then fell until 2008 despite the increases in the gold price in a decade-long bull run. Growth started again in 2009, with a 400-ton rise up to last year when growth was just six tons. GFMS, a London-based metals consultancy, expects global miners to add 35 tons of gold this year.

"I would argue 400 tons of cumulative mine production has certainly played a part in dampening down prices in the last year or so," Mr Klapwijk said.

China alone added 40 tons of new gold, offset by a sharp fall in South Africa.

The gold price is forecast to average $1,845/oz this year, compared with $1,669/oz last year. The all-in cost to produce an ounce of gold is well above $1,000.

Cadiz Corporate Solutions analyst Peter Major said platinum was the worst performer among five commodities including gold and oil. Growth in South Africa was also under threat.

"Who wants to increase when you are under threat from so many angles like you are in South Africa? We’re not sure who runs the mines any more," Mr Major said.