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Wednesday, April 1, 2009
Still worth its mettle

Gold gold demand
The World Gold Council (WGC) updates important statistics on the global gold market. Prices follow supply and demand. As with any other commodity, gold has its own supply/demand dynamics. Because gold is both a commodity and a monetary asset, this makes it unique.
And, because it is virtually indestructible, all the gold that has ever been mined over the centuries still exists above the ground in some form or another.
This means that in a mostly unfabricated form, above ground stocks are easily mobilised, which means that when prices spike upward, this is often met with the resale of above ground stock. This is perhaps one reason why the gold price is less volatile than the majority of other commodities.
The annual demand for gold falls into three main categories:
• The biggest is the jewellery market
• Industrial demand – electronics and dentistry
• Investment demand – mostly over the counter trading.

The supply comes from mine production, and the recycling of metal mined in previous years.
As the price of gold increases, it tends to have an immediate impact on jewellery and industrial demand. However investors tend to get more excited as prices rise and when combined with the impact that exchange traded funds have had on the market, investment demand increases as the price rises
So while demand from jewellery fell, this was more than made up by the 64% increase in identifiable investment, bringing total demand up to 3 659 tonnes in 2008.
The investment demand for physical gold was up 87%, while demand via listed ETF’s was also above trend. The latter has been a growing cumulative source of demand as seen in the first table.

Wold gold supply
Global markets remained under pressure. Locally the Anglo American annual results disappointed investors with the suspension of the dividend. The price fell almost 16%. This dragged the local JSE down. The one area that remained firm on the local market was gold, which moved close to the $1 000/oz level – currently around $996/oz (around 20th February 2009).
The World Gold Council reckons that the best estimate of gold mined over history is approximately 158 000 tonnes, of which around 66% has been mined since the 1950s. As can be seen from the second table annual mine production is coming in at around 2 500 tonnes per annum.
While gold is mined on every continent, South Africa has been the dominant producing country in the world, producing 1 000 tonnes per annum in the 1970s. This has steadily declined. Until 2006 SA was the world top producer. China overtook SA in 2007 and it looks like the USA overtook SA in 2008.
SA produced 247,2t in 2007 and the 2008 number was down 16%.

The statistics from the WGC reflect global mine production slowing to 2 476 tonnes in 2007 and an annualised 2 388 tonnes in 2008. From this they subtract producer hedging (i.e. gold sold forward in previous years) to arrive at mine supply. Information for this article supplied by Seed Investments.

Copyright © Insurance Times and Investments® Vol:22.4 1st April, 2009
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