Gold deliveries slump to lowest since 2014

Gold deliveries slumped to their lowest since 2014 falling 31% in 2020 as the sub sector marked a tumultuous year where the country failed to take advantage of a record rally on the price of the yellow metal following challenges in the key artisanal mining sector.
 
According to statistics from Fidelity Printers & Refiners, gold deliveries from small scale miners and primary producers were down 31% to 19.05 tonnes in 2020 from 27.66t in 2019. This is the lowest in six years and is below the 25t target set by the industry at the start of last year although the margin could be much narrowed if deliveries from secondary producers who usually contribute between 2-4t are accounted for.  

Small scale miners' deliveries declined 46.52% to 9.3t in the twelve months mainly due to price distortions and payment challenges which gave rise to arbitrage, corruption, and illicit financial flows within the gold sector. From 2017 to 2019, the small-scale sector delivered more gold to FPR than large scale producers. In 2019, the miners accounted for 63% of total gold deliveries. Directly the sector benefits over 1 million people and over 3 million indirect beneficiaries. In 2014, the small-scale sector only delivered 3.9t.
 
Low deliveries started when the RTGS started losing value rapidly on the black market. With FPR paying a favourable price of US$47 per gram against the black-market rate of US$39-42 in the first quarter, the export surrender ratio of 55-45 - a decrease from the 70-30 ratio before the February 2020 MPS - saw producers favouring black market transactions. This was because the 45% was being paid out at the official rate of 25. Gold deliveries from the sector between January and April 2020 declined 20%.
 
FPR would later change its pricing framework where it would pay US$45 per gram of gold for small scale miners in US$ while large scale producers were put on an 80-20 retention ratio. When the new gold trading arrangements were announced, the black-market rates were offering roughly 200% more in comparison to the official exchange rate. However, the boom in international gold prices (after a seven-month low decline in March), which offered US$54.8 per gram when the new gold trading measures were announced eroded the competitiveness of FPR's gold payment methods and deliveries from the sector slumped in August at a time that gold prices rose to record highs above US$2 000/oz, which resulted in a 38% uptick for gold from its lowest to highest point in 2020.
 
FPR moved to an LBMA linked pricing but the shortages of physical notes would constrain Fidelity's capacity to make spot payments. Zimbabwe Miners Federation spokesperson Dosman Mangisi said policy inconsistencies especially on payments had affected deliveries while the effects of the coronavirus pandemic did not spare the sector in 2020.

"There was a lot of inconsistencies which made small scale miners shun the official market. Added to this is the effects of the lockdown, which saw miners reduce working hours particularly in April."
 
FPR general manager Fradreck Kunaka said the lockdowns due to the coronavirus affected gold deliveries to the international markets leading to a shortage of foreign currency cash to pay producers especially the small-scale miners who had anchored production in recent years. He also added that the lockdown had affected FPR's plan to fly in physical notes as he forecast that the problems encountered in 2020 would continue into the new year as the deadly virus continues to wreak havoc across the world.
 
Gold Miners Association of Zimbabwe chief executive also said the decline in small scale miners was due to payment delays.

"We, as an association, are worried that there are so many leakages on the market due to FPR's payment delays. As a result, a lot of gold is not going through official channels and not because production is low." It is estimated that close to 70t is smuggled out of the country annually.
 
There was an improvement in deliveries in December at 0.74t from 0.51t in November but year on year deliveries from small scale miners were down 60%.  

Primary producers delivered 9.73t, a 4% drop from 10.18t in 2018 as that sub-sector is currently undercapitalized. In December, gold deliveries from the sector declined 6.22% to 0.81t from 0.89t in November due to the start of the rain season. Total deliveries for December were down 43% to 1.5t with the average price around US$1 855. Earnings from the sector are expected to be around US$1 billion with the possibility that Diaspora Remittances instead of gold are expected to be the country's main foreign currency earner.
 
The outlook for gold in 2021 is not as buoyant as the success of coronavirus vaccines have weighed on the safe haven's asset ascent. As reports about the efficacy of various vaccines began to emerge in mid-November, gold fell by as much as 6%. Gold prices are likely to fall further is the vaccine is rolled out faster than is the case now.