A former economic adviser to US President Barack Obama has given Australian miners a beacon of hope, expressing confidence in the market’s recovery during a presentation at the 2013 Diggers & Dealers conference in Kalgoorlie last month.
Amid tales of redundancies, cost cutting and mothballed projects, economic commentator Austan Goolsbee remained optimistic that Australia would return to a positive economic outlook in the long term, despite current tough conditions.
“Once you get past the bumps of the next six to twelve months, countries like the United States, Australia and China have a case for optimism,” keynote speaker Mr Goolsbee said.
There was no denying that many miners were doing it tough – if the 13 per cent drop in attendance for the conference itself was any indication – and Mr Goolsbee said China remained “the big question mark” when it came to the future of Australia’s resource economy.
He questioned whether China would maintain outstanding growth for a long period of time or if the country’s “bubble” of growth would slow substantially, stating that the second option would not have good implications for industry.
However, demand for commodities, energy and shipments were a better reflection of the state of the Chinese economy than official statistics, which Mr Goolsbee said were released quickly, seldom revised and gave the impression of being “smoothed out by somebody”.
“Definitely there has been some slowdown in China where investment to GDP ratios feels like something not sustainable in the long run effort. Effort on the part of the government to shift to domestic demandwill be important,” Mr Goolsbee said.
“Over the medium run, I see Chinese growth continuing and the impact on Australian resources will likely still be there, but lessen over time as they shift more to domestic services.
“If anything there will be an increase in the demand for mining resources and mining minerals coming from the United States as it shifts to investments-led and export-led growth.”
Mr Goolsbee said the US economy was shifting its focus to exports and manufacturing at a time when the world’s economy was sluggish, government austerity was shrinking and the US Government appeared in gridlock about the possibility of spending cuts to offset the budget deficit.
He said that, while he couldn’t foresee Europe emerging from the Eurozone crisis within the next decade, he believed that Australia would be different, unless it fell into the trap of spending on the basis of boom-time earnings.
Mr Goolsbee drew a parallel between Australia’s current economic climate and that of the US during the 1990s, when large surpluses forecast on the back of market gains led to a raft of tax cuts that proved problematic once revenue growth was shown to be unsustainable.
“You’ve got to be careful in forecasting, particularly off something like resources, which is cyclical,” he said.
In his conference address, World Gold Council managing director of investment Marcus Grubb said Australia’s resources ‘super cycle’ was not over, instead going through a readjustment phase; and as gold demand was driven by wealth, demographics, savings rates, weddings and festivals, the market would continue to grow as India and China increased their wealth.
“Once we’ve gone through this short term readjustment in the market we believe the long term outlook is very positive,” Mr Grubb said.
Confirming that the World Gold Council maintained a bullish view of the commodity market, he said demand from China – which makes up 50 per cent of the global gold market, alongside India – had soared in the past year with the purchase of 776t of gold. “This market has blown the doors off. This could be a 1000 tonne-plus market by the end of the year,” Mr Grubb said.
He added that when gold prices fell in April, gold shops across China and India sold all of their merchandise.
“There’s no doubt of the strength of demand of this gold price and this demand isn’t going to go away,” he said.
“As India and China get more wealthy they’re going to buy more gold.” However, Commerzbank senior commodity analysts warned that because of their position as lobbyists for gold producers, the World Gold Council would be optimistic about gold prices by nature.
“The WGC expects supply to tighten because gold mining producers are cutting spending and shutting down high-cost mines,” Commerzbank analysts stated.
“In the WGC’s view, mining production this year could remain at last year’s level and could subsequently even drop.
“We would question whether this would already be enough to offset the fall in investment demand,” the analysts said, referencing recent outflows in gold exchange-traded funds.
In early August gold prices dropped below US$1300/oz, losing almost one quarter of the metal’s value since the beginning of the year.