Total gold demand stable for more than a decade, so why is the price rising?

And in 2012, some think the rises will continue.

But what is underpinning that rise?

This is a look at the global demand for gold, which may help readers assess whether these stellar gains will continue at the same pace.

(We will look at global supply in another review.)

The biggest demand for gold by far comes from jewellery, and this traditionally peaks during the Indian wedding season.

But this demand has been steadily declining in volume terms (as the price rises?). In 2000 it represented more than 80% of total demand. By 2011 it had fallen to just over 50%.

Industrial use is relatively minor, and is certainly not growing. The big, exciting new industrial uses are in nano-technology, but even with wide adoption, the volumes will be tiny.

Individuals and other retail investors are the ones who have shown the most enthusiasm for gold. They have been buying coins, bars and bullion in record amounts since the start of the GFC, but their demand is still less than jewellery demand. It is this ‘crowd’ that is bidding up the price.

Big professional investors do dabble, and they do acquire large holdings. But the latest demand data shows they have recently been net sellers, and it has been a while since they bought significant quantities. The so-called ‘smart money’ doesn’t seem to be in gold at present.

Overall gold demand is not really growing; the rising appetite by investors has driven up the price, and it has been counteracted by lower demand for jewellery. Big professional funds briefly entered the market in 2009 and early 2010 but have now largely withdrawn.

Total world demand has been at about 4,000 tonnes per year (1,000 tonnes per quarter) for more than a decade and is barely growing. But what is growing is investor fear and uncertainty, and this is at the heart of the rising price. But at ‘only’ 4,000 tonnes per year, the world gold market at today’s prices is a trade worth US$190 billion annually, only a tiny fraction of the US$60 trillion world GDP. But US$190 billion (NZ$240 bln) is substantially larger than NZ’s 2011 GDP (NZ$205 bln; US$150 bln).

Source: interest.co.nz

Tags: Gold analysis, gold forecast, Gold future prices, Gold futures, Gold investment, Gold news, Gold price, gold price 2012, gold price forecast, Gold prices, price of gold, Spot gold, Spot gold price

Posted by admin on Dec 30 2011. Filed under Gold predictions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry