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[miningmx.com] -- GOLD supply fell 13% in 2004 compared to 2003 recording the sharpest fall in mine production since the 1940s, the World Gold Council (WGC) said in its annual review. Gold production, which totalled 2,478 tonnes in 2004, recovered slightly in the fourth quarter of 2004, however, owing to improved production from Grasberg, a large gold mine in Indonesia. The fourth quarter also benefited from a number of new mines, the WGC said.

Gold mining companies continued to allow their hedging programmes to unravel without renewing them. “De-hedging was high throughout 2004, 59% higher than in 2003,” the WGC said. Scrap supply was 14% lower in the fourth quarter “... continuing the trend evident in the first three quarters of the year,” it said.

The renewal of the Central Bank Gold Agreement (CBGA) led to a 36.5% increase in official sector or central bank sales quarter-on-quarter. Of the 234 tonnes sold by central banks, roughly 135 tonnes was by members of the CBGA. The balance was by official sector gold holders outside of the agreement.

The CBGA is a renewal of a 2000 agreement in Washington in which major central banks pledged to control gold sales to a 400t/year ceiling. The new CBGA agreement has fixed on a gold sales ceiling of 500 t/year.

Net consumer demand for gold, which is dominated by gold jewellery, increased 7% in volumes terms in 2004 (20% higher in dollar terms) compared to 2003, the WGC said. However, consumer demand for gold was expected to slow this year. “Economic conditions are likely to be less favourable to jewellery than 2004, so growth may be weaker than last year,” it said.

Industrial demand would also suffer the effects of weaker economic conditions but would favour investment. “In contrast, a weaker world economy and concerns over global imbalances and the dollar should, along with on-going political worries, favour investment,” the WGC said.