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Our products and our markets

JEWELLERY AND INVESTMENT SECTORS DOMINATE

Our products

Gold mining uses and produces a wide range of materials, from the upstream inputs procured through our supply chain, to downstream outputs in the form of gold and related by-products.

To ensure that reliable and effective management systems are in place for the stewardship of our materials and that gold’s good reputation is maintained, AngloGold Ashanti is an active participant in a number of international initiatives aimed at addressing concerns within the gold production process, including the Organisation for Economic Co-operation and Development (OECD), the International Council on Mining and Metals (ICMM), the World Gold Council and the Responsible Jewellery Council. The initiatives are responding to societal concerns about the environmental and social impacts of gold mining, especially those concerns expressed most visibly under the US Dodd Frank Act section 1502 around the financing of armed conflict in the DRC. These organisations are developing chain-of-custody standards to enable members to demonstrate that the process of producing gold and the process from mine to smelter to refinery and beyond is responsible and especially that it does not contribute to conflict.

Two high-volume by-products of our gold production process, both of which are a function of the characteristics of local geology, are uranium, produced by certain South African operations, and sulphuric acid, produced by our Brazilian operations. As each of these by-products is potentially hazardous, we ensure their safe production and transportation to customers. (For further information on our product stewardship programmes and initiatives, see Sustainability Report 2011Responsible gold).

Our markets

Demand for gold by sector – 2011 [graph]

Total gold supply – 2011 [graph]

Average monthly gold price – 2011 [graph]

AngloGold Ashanti’s gold is refined at various precious metal refineries. In refined and marketable form, gold normally takes the shape of bars, varying in size from 12.5kg to smaller bars weighing some 1kg or less, all of which contain 99.5% gold. Through the refineries the gold is sold directly to bullion banks. Bullion banks are registered commercial banks which deal in gold, distributing bullion bought from mining companies and refineries to markets worldwide. These banks hold consignment stocks in all major physical markets and finance these inventories from the margins they charge physical buyers.

The physical gold market is dominated by the jewellery and investment sectors, which together account for over 80% of total demand. The balance of gold supply is used in electronics and dentistry. While the quantity of gold used in jewellery consumption has decreased over the last decade with the steadily rising gold price, the investment market has largely absorbed available supply. Investment in physical gold involves bar and coin hoarding, medals and other retail investment instruments, as well as the now significant market for exchange traded funds (ETFs).

In 2011, the gold market continued to be profoundly influenced by ongoing economic turmoil, particularly in the United States of America (USA) in the first half of the year and latterly by the crisis in the Eurozone, which continues to be driven by fears of sovereign defaults. As anticipated in times of global turmoil, the gold price rose to a new intra-day high of $1,921/oz, as gold once again reflected its status as a SR reliable store of value and a hedge against dollar weakness.

This trend persisted until the fourth quarter, as the situation in Europe deteriorated, and the euro started slipping against the dollar, in the face of the inability of the European countries to resolve the funding crisis.

Despite these headwinds, the spot gold price still gained 11% during 2011 and averaged $1,572/oz for the year. This marks a 28% appreciation over the average spot price of $1,227/oz in 2010 and marks the 10th consecutive year of price appreciation, the longest ever bull run in the gold price.

Investment market

Despite the failure of the gold price to respond to the worsening crisis in Europe, ETF holdings grew over the course of the fourth quarter, improving on a sluggish first quarter and reversing the negative trend of the second and third quarters.

At year-end, aggregate holdings for the major ETFs totalled almost 78Moz, which represents a 7% increase of 5.2Moz for the year. This growth is modest when compared to the massive surges in ETF holdings of 2009 and 2010 (19.84Moz and 9.97Moz respectively). That said, combined holdings of the ETFs remain significant. When compared to official sector holdings, combined ETFs rank sixth behind official sector holdings of the United States (267Moz), Germany (109Moz), IMF (91Moz), Italy (79Moz) and France (78Moz). As was the case last year, official sector demand in the gold market remained significant, with governments continuing to increase their gold holdings in the face of extreme economic uncertainty.

More traditional gold investment products such as bar and coin experienced a very mixed year. In India, the world’s biggest single gold market, gold price volatility and a weakening rupee severely dampened gold demand in both investment and jewellery. In China, such volatility also played a negative role but since the value of the Yuan is so closely managed, the impacts were not as marked. Unlike India, China recorded growth in both investment and jewellery demand in 2011. In the developed markets, Europe was by far the strongest for bar and coin hoarding, and in the third quarter European demand exceeded that of India and China – a highly rare occurrence. Much of this activity was driven by the debt crisis in the Eurozone.

Jewellery markets

The key jewellery markets of India and China both experienced mixed fortunes during the year. After a record year in 2010, India’s first two quarters remained strong but fell off in the second half of the year on price volatility and rupee weakness. Price volatility also dampened demand in China, but unlike India, which experienced a contraction in the third and fourth quarters, China still recorded increases all year round, with total jewellery demand growing by 16% to reach 524t. In the United States, the jewellery sector showed modest growth of around 3% as the market finally began to settle after years of turmoil. Improving credit terms and a mild improvement in consumer sentiment is likely to continue to fuel growth in this sector. The high end of the gold jewellery market in the United States showed the greatest growth for the second year as the wealthy are less affected by a financial downturn than low to middle income earners.