Global Gold Production on the DeclineBy Jon A. Nones08 Mar 2007 at 12:39 PM GMT-05:00St. LOUIS (ResourceInvestor.com) -- Yesterday, South Africa's Chamberof Mines reported that gold output fell last year to 275 tonnes, down8% from 2005. Some sources say South Africa's decline in goldproduction is now becoming a global affair, as seen in leading goldproducing countries.According to stats from GoldSheets.com, U.S. gold output for lastyear declined from 262 tonnes to 260 tonnes. Australian productionfell to 251 tonnes from 263 tonnes. Gold produced in Peru declined to203 tonnes from 207 tonnes. Russian gold output dropped 4 tonnes in2006 to152 tonnes, while Canada fell from 118 tonnes to 104 tonnes."Production in Australia, South Africa, Canada and Peru is expectedto continue slumping in the next few years, probably stabilizing in2010, but never reaching their peak levels from years past," saidNeal R. Ryan, Vice President and Director of Economic Research forBlanchard and Company, Inc.Ryan said global production for gold peaked in 2001 at 2,604 tonnesor 83.7 million ounces. With 2006 production expected to come in at2,467 tonnes, annual gold mining supply will have fallen 4.4 millionounces in five years. Since 2001, prices have almost tripled from$260/oz to $650/oz."So much for supply/demand economists that always say higher pricesequal more production," added Ryan.However, Dennis Gartman, editor of the Gartman Letter, said lastyear's decline in gold production was the very logical result of highand rising gold prices. As gold moved higher, lower grades of goldore are mined, he said."The Chamber of Mines in South Africa said that its members reporteda 1.5% increase in tonnes of ore mined, but also reported a 9.3%decrease in the average grade mined," he added.Further still, the Chamber noted that the cost of mining gold rose bysubstantially more than inflation, with the total production cost ofmining a kilogram of gold, before capital expenditure, rising 11.9%year-on-year."Mining gold is not an inexpensive venture! Thankfully, it is a bullmarket," said Gartman.China actually expanded production from 224 tonnes in 2005 to 240tonnes last year, according to GFMS."Chinese mine production is ramping up fairly quickly, but that toohas only so much it can increase, while the other major producingcountries continue their downdraft," said Ryan.Source: GoldSheets.comGlobal annual supply is generally considered to be about 100 millionounces, according to stats from the World Gold Council."So just from mine production, we're talking about 4.4% decrease insupply ... add the potential of central bank sales being 6-8 millionounces short this year," Ryan added.Last year, central banks consistent with the Central Bank GoldAgreement (CBGA) of 27 September 2004 ended the year well under the500-tonne quota. Although sources differ on how much was sold, RI hasit at about 370 tonnes.So far this year, CBGA banks have sold about 110 tonnes. At thecurrent rate of sales of about 22 tonnes per month, central banks areon pace to end the year around 230 tonnes short of the 500-tonnequota, and would have to sell about 55 tonnes per month here on outto make up the difference.Ryan said there is potential central bank purchases around 2-3million ounces, should current Russian bank and other third tier bankbuying continue.He said, "we're looking at a combined impact of 12-15 million ouncesof supply being reduced from the market, 12%-15%."Gold futures are currently up $1.10 at $654/oz in New York.