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DEMARD AND SUPPLY



Purchasing Power
Inflation Hedge
Risk Management
Demand and Supply


Between 2000 and 2009, the value of global gold demand increased by 272%. The World Gold Council states that Gold demand in the third quarter of 2011 reached 1,053.9 tonnes. This equates to US$57.7bn, an all-time high in value terms. Demand growth was driven by investment demand, which rose by 33% year-on-year to 468.1 tonnes.

Demand

Worldwide gold production is not matching consumption. The price will go up with demand. The gold price hit a record $1,920.30 an ounce in the third quarter of the year, thanks in large part to investor concern over the impact of the unfolding euro zone sovereign debt crisis on the regional economy, as well as over the burden to the U.S. economy from its debt. European purchases of bars and coins more than doubled to 118.1 tons in the third quarter, accounting for 30 percent of total coin and bar demand and making it the single largest source of demand for bullion in this form.

Even demand in China hit record highs, Sun Zhaoxue, the head of the county's largest state-owned gold miner stated "Chinese demand will outstrip Gold Mining supply over the next three years. Sun predicts demand to buy gold is set to grow 25%, to 700 tonnes and also stated "Our analysis shows that if gold demand were to continue to increase so markedly, domestic supply would be unable to keep pace." WGC data show that Chinese demand rose 47% year-on-year to the first quarter of 2011. Gold Bar and coin investment saw the major jump, rising 123% to 91 tonnes.

Supply

According to the World Gold Council supply of the global mine production has averaged approximately 2,497 tonnes per year over the last several years. The stability of production comes from the fact that when new mines are developed, they’re mostly serving to replace current production, rather than expanding global production levels. That means mining output is relatively inelastic, unable to respond quickly to a change in price outlook. Even a sustained price rally, as experienced by gold over the last seven years, doesn’t translate easily into increased production.

Recycled gold

While gold mine production is relatively inelastic, recycled gold ensures there is a potential source of easily traded supply when needed. This helps to cater for an increase in demand and keep the gold price stable. The high value of gold makes recovery economically viable, as long as the precious metal is in a form that’s capable of being extracted, melted down, re-refined and reused. Between 2005 and 2009, recycled gold contributed an average 32% to annual supply flows according to the WGC.
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