According to Thomson Reuters GFMS’ fourth quarter gold survey, mine supply is estimated to have fallen by 4% year-on-year in the December quarter, representing the largest quarterly decline since 2008.

“We expect this trend to continue in 2016, due to lower production at more mature operations and a lack of new mines coming on stream,” GFMS said.

“We currently forecast global mine output to shrink in 2016, marking the first annual decline since 2008 and the largest decline in percentage terms since 2004.”

Total gold supply for the fourth quarter (including scrap) dropped 7%, while physical demand rose by 2% thanks to a strong pick-up in net official sector purchases.

Jewellery demand dropped 2%, with an increase in Indian demand partially offsetting a drop in Chinese consumption.

ETF gold holdings declined by 69t during the quarter as gold prices languished ahead of the US interest rate rise.

GFMS said the December quarter marked the sixth quarter out of the past seven in which the gold market was in surplus, though the surplus dropped to 41t.

Gold broke through the $US1110 an ounce mark this week on strong safe haven buying after global markets got off to a rocky start to the year.

According to GFMS, slowing Chinese growth and the negative outlook for the yuan should benefit gold in the medium-term.

While the market has priced in four US rate rises this year, GFMS is expecting two small rises at most.

The Fed left rates unchanged overnight after a rise last month.

GMFS expects gold to average $1164/oz in 2016, rising above $1200/oz towards the end of the year.

“Gold prices are set for a gradual recovery in 2016, particularly in the second half, driven largely by improving fundamentals, as we expect to see a rebound in pent-up demand from Asia and a further contraction in global mine production,” it said.

Spot gold last sat at just under $1126/oz.