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Total gold demand has been stable for more than a decade. So why is the price rising?

Total gold demand has been stable for more than a decade. So why is the price rising?

The gold price is ending the year on a decidedly soft note.

But its price has risen remarkedly steadily since 2005, rising from US$415 per ounce to a peak of almost US$1,900 per ounce on September 5, 2011.

Since then, it has fallen US$364 or almost 20% to end the year at about US$1,530 per ounce.

This represents a compound gain of almost 29% per year over these six years.

In NZ dollars, the rise is nearly as good. The rise since the start of 2005 has gone from just under NZ$600 per ounce to just under NZ$2,000 per ounce, with the peak on November 15, 2011 of NZ$2,314 per ounce. That is a compound rise of over 27% per year.

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 look at global supply in a separate review.)

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

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.

world gold demand for industrial use

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.

world gold demand for ETFs - exchange traded funds

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 gold demand

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).

More data and resources are available at the World Gold Council's website.

Precious metals

Select chart tabs

Source: Kitco
Source: Kitco
Source: Kitco
Source: Kitco

(Updated by correcting the investment demand chart.)

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36 Comments

Because ppl fear inflation......too many ppl...

regards

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Punters don't trust lying thieving govt and corrupt reserve 'private' banks...end of part one...

Part two is a red flag...a paper promise that your gold is safe and stored away ready for you to collect has as much value as wet toilet paper...ETF trading is dangerous as gamblers and fools are finding out right now.

The market price for gold is manipulated by backroom criminals. They win you lose.

If you are determined to own gold....buy NZ coins from the mint and/or bullion bars....store it in a private bank vault. If you are an American citizen...you poor sod...the Feds get to know what you bought and where you put it...so they know where to go when the govt decides to steal it from you. Hiding it in NZ will not work.

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…..because GOLD is beautiful - and women and magpies like it.

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Underneath all the possible price manipulations, legal or otherwise, there could be an old fashioned economics 101 answer for why gold price is rising. Mr. Chaston described demand but not supply. Maybe that will be in part 2. Anyway, wikipedia says global production for 2009 was 2,460,000 kilograms. http://en.wikipedia.org/wiki/List_of_countries_by_gold_production

That makes supply just over half of the yearly demand, which should increase the price. Unless all those people holding ETF's are happy with just paper, then it doesn't matter at all if the supply of physical gold falls short. There still are plenty of trees, at least for now.

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Are you suggesting the SPDR:GLD ETF is not fully backed by physical Gold?

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Moa Man...for you.... http://www.marketoracle.co.uk/Article32264.html
"The fraud cases and lawsuits, with no hint of prosecution, provide the levered force to create much wider divergence, as traders and entire firms depart the tainted crime scene that is the COMEX."

I would buy physical gold...coin/bars.....I wouldn't go anywhere near paper promises.

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There are rouges in any line of buisness, although the MF Global debacle should never been allowed to develop, a big failure by the US CFTC.

As for paper promises, that's a matter of degree. How many holders of physical gold have had thier holdings assayed? Not very many I would suggest.  The certificate that came with the gold coin / bullion is also printed on paper.

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It is also stamped 9999 fine into the metal.

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All very true...and that's the same stamp they used on the 'bullion' bars in Fort Knox that are 80% Tungsten...don't ya just love it.

Best rort was the 'golden hand nugget' a masterpiece of aussie forgery...real gold...so I'm told.

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Damn you!  Now I have to cut one in half. FFS!

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Hey wait, weigh whatever you've got then submerse it, note the volume increase and eureka you've got the density.

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Tungsten is the same weight and density as gold, just much much cheaper.  The only way to test is by drilling, or chiseling in half.  Which is quite sad really.

http://www.popsci.com/diy/article/2008-03/how-make-convincing-fake-gold-bars 

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It cannot be the same skudiv.....it can be close...but not the same.....!

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Yep, but close enough to fool any home made relative gravity test.

Tungsten is vastly cheaper than gold (maybe $30 dollars a pound compared to $12,000 a pound for gold right now). And remarkably, it has exactly the same density as gold, to three decimal places. The main differences are that it's the wrong color, and that it's much, much harder than gold. (Very pure gold is quite soft, you can dent it with a fingernail.) 

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You can test metals with a sonogram, as in this video from goldmoney

http://www.youtube.com/watch?v=rh0Mcagio5Q

Cheers

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Good one, I didn't know they could do that.

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Thats only $126.5 Billion of physical gold, or a little over an hours volume on the FX markets.  Physical gold has to dissapear from the visible market in order for the next phase of the Global, Centralised, Regime to take place.  Without gold to act as a measure of fiat debasement, govt printing will be easier to mask.

When physical gold becomes untradeable on the open markets, it will be possible to use national bullion reserves to pay off debts.  The price will not be fixed, but it will be used as collatoral.

Ever wonder why Greece has been using the bailout money to buy gold bullion?

Gold not silver, I still like silver but it will not be monetized in the same way as gold.

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phew! Fortunately property prices never drop like gold...

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Thanks for the laugh Mandalay.

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as long as it was a full bell laugh Bruce ;~).... Happy New Year!

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Holy cow , Batman , " white gold " is where the action's at . Milk is poised to be the best performing commodity for 2011 . And Michael Gurka ( MD of Spectrum Asset Mgt. ) reckons milk will surge again in 2012 .

 www.cnbc.com/id/45804876

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Good point Gummy, it's .govt policy to increase the price of milk cheese and everything else in the CPI by 1-3% every year.

Happy 2012 may you always have pleanty of milk, and may it never spoil.

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Thanks skudiv : Best wishes for 2012 to you , too .

.... matter of fact , the Gummster family love Fonterra's milk so much that we're gonna spend  most  of  next year  where we can get that sensational milk at it's cheapest ....... Australia !

Moooooo  !

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I would have thought that the low volume would make it very difficult to determine if we are in fact in a downward trend. On the downside gold had broken the 200 day sma and longer term trend line but the question is will they remain below. Negative RSI divergence also looks like there is more downside to come. Although new to charting, I can see that the longer term trend is looking like a bullish flag pattern of which the fulfilled requisite of descending volume with the descending price. Ichimoko supports that a bull trend remains in place also.

With all the lies and manipulation who knows. Certainly most of those at zerohedge are still bearish fiat money and thus pro gold.

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Scarfie, I've also been looking for some way of combining volume and price. If very few trades are made, those particular buyers and sellers might easily be motivated differently from the majority of buyers and sellers, and the traded price during times of low volume might not be the market price at all.

It would be great to see some sort of actual weighted average that uses the real traded price and volume for each transaction. Lots of data I know, but not impossible. It would be a big improvement on price data that's based on the last trade of the day, whether or not it represents what happened that day.

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What I have not done is test the theory of some Gold Bulls and try and buy physical silver at these low prices. Their theory goes that no one will of course sell at that price.

Their theory also extends to saying that price is irrelevant as it is in terms of worthless fiat currency. I am not so convinced myself, however I am leaning towards the probability of continued printing as I don't see any other way they can play it.

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It is only relatively recently that gold has been a speculative commodity - at least one that is traded on margin.

That may have had something to do with the price spike and subsequent fluctuations that are new to the gold price graph.

However underlining demand for gold in uncertain times is historically strong...

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 "2011 has been a truly enlightening year. We learned that change had not arrived, despite all our hope. We learned that the U.S. Congress cannot be trusted to prevent the financial calamity which lies ahead for the U.S. But most important, we learned that Keynesianism, a form of socialism taught in modern day academia, has been a complete failure, and perhaps a complete hoax."

 http://www.marketoracle.co.uk/Article32340.html

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The keynsian game is not over yet.  Not by a long shot.  ECB is buying Greek bonds, regardless of any credit rating, nothing to stop them applying this to any of the other PIIS.  The Long Term Refinancing Opereation extended ECB bond buying to 3 years pre crisis it was only a few months, they can increase this to 10yr and 30yr's, and never have to call it QE.  Bernanke doesn't even need an excuse to increase the money supply, he has already agreed to buy anything and everything, as long as the seller is TBTF.

US deficits already forcast for 8% and they never undershoot those targets, NZ govt is still trying to work out why tax revenues are down, more freshly created money everywhere I look.

The Keynsian game will never be over as long as we have Banks, Central Banks and Elected Govts.

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and local idiot govt is getting in on the credit splurge as well...we are rushing headlong into the same hole the piigs are in...hello Mr English....what are you THINKING..thinking...thinking

Still just an acho between the ears, right Bill...!

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The big commercials i.e. JP Morgan, Jefferies, Bank of Nova Scotia etc have been manipulating the gold and silver prices over the past year, pushing them down as much as they can through futures contracts and then buying up physical metals at the new lows. That should be all you need to know that the only way gold and silver is going in the future is up, up and up. When the banks start buying up large you know they too have lost faith in paper.

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Comex $80 Billion Open interest $2.7 Billion of physical bullion most people take cash settlement.

It's like being able to insure money, without counterparty risks (if you hold physical).  Worst case scenario gold will go to the moon, best case scenario you have a "barbarous relic" to hand down to your grandchildren.

Silver has almost halved in price, and to me is an even cheaper way to insure money.  With a current price ratio to gold of 55x and a rarity of 15x gold there is a huge discrepency.  80% of silver is used in industry, and it is used in green-tech, medical and electronics, demand looks strong for silver in any scenario.

Every time you throw out an old computer or cellphone you are throwing away gold and silver.  As I understand it the average PC contains about 1g $70 of gold.

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Cognitive Dissonance: When your LEADERS tell you to save and buy profitable assets; while simultaniously selling profitable assets, borrowing to pay living costs, reducing income, reducing interest rates and enacting policy to de-base savings.

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David I went looking for information on 'Monetary Commodities' several weeks ago after coming across the term.

I sent this article to Bernard which makes an interesting proposal. http://www.drschoon.com/articles%5CAEFMonetaryVersusNonmonetaryCommodites.pdf

 

"A monetary commodity is one that can, in most applications, be substituted by a promise to  deliver it. Once endorsed, the promise can be passed on to a third party. The promise itself may  take a variety of forms from a warehouse certificate through standard futures or option contracts  to an ad hoc forward sales or swaps agreement. On a strict application of this definition there are  only two monetary commodities: the senior one is gold, the junior one is silver. Sorry to disappoint  platinum and palladium addicts: theirs are not monetary metals"   Seems to me that the promise to deliver is the key principle at stake when discussing the price of precious metals.
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This is the TRUTH about how the bailouts work (newly revised.)

It is a slow day in a little Greek village, planet earth. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner thinks about maybe beating the tourist to death, but decides to give him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and shoves it in his pocket. He owes Piraeus Bank down the street €100,000 but has little intention of repaying it as his business has been contracting for several years. That bank also has claims of €10,000 on a butcher's business, €50,000 on a pig farmer, €75,000 to a supplier of feed and fuel, but in turn owes €100,000 to EFG Bank which itself has fractionally reserved claims on a pub owner and a prostitute who bought two homes on 105% LTV among many others.

At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, and asks for his €100 note back. The Greek innkeeper asks "what €100 note?" The German threatens to call the police. The innkeeper says "go ahead, ask for my brother who's a Lieutenant down at the precinct, he'll help you out." The German storms out back into the night, €100 poorer. No one produced anything. No one earned anything. However, the whole village is still buried in debt and looking to the future with a lot more optimism at the thought that maybe the Germans really are that gullible.

And that, Ladies and Gentlemen, is how the bailout package works. 

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Oh too bad about tungsten, they should have told Archimedes about that one.

What about magnetism? Apparently gold pushes away a magnet, but tungsten attracts it. Would like to test it myself but don't have the materials. If someone tries it let us know.

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