In 2011, the rise in the price of gold has been very positive for investors. While gold in 2011 has risen from early 2011 until early December 2011 by 21% of its value, there was from mid-September to mid-October also a significant drop from the interim high of USD$ 1,900 (€ 1375) by 16% to USD$ 1,600 (€ 1,176). However, from this low point, the gold price rapidly recovered by about 8%, so that the price of gold is with USD$ 1,725 per ounce currently 21% higher as at the beginning of the year.
In 2012 the gold price will be determined by the supply of and the demand for gold. The supply of gold is determined by the gold mining by mining companies, the recycling of gold, and the possible sale of gold by central banks.
The demand for gold is composed of three building blocks: Gold for technological applications (particularly in dentistry and electronics), gold in jewelry and gold as an investment product.
The demand/ supply of gold by central banks could also be considered on the demand side. Since the central banks were until recently net sellers of gold, the supply or demand appears regularly on the supply side, even though central banks have bought in 2011 more gold in total than they have sold.
Gold supply
According to the World Gold Council, the identifiable supply of gold increased in the 3rd Quarter of 2011 by 2% over the level of the previous year. Gold production from gold mines increased by 5%, the recycling of old gold increased by 13% over the previous year. The supply of gold rose by a total of only 2% as central banks continued to buy more gold than to sell – to an increasing amount. After many years in which the central banks sold gold, this trend turned around for the first time in 2010 and has accelerated in 2011.
Gold demand
According to the World Gold Council, total supply of gold increased by 2% in the third quarter of 2011 compared with a 6% rise in identifiable demand for gold. In the third quarter of 2011, about 44% of the available gold supply went to jewelry-making and investment, respectively. The remaining 11% went into technology.
Compared to last year, demand for gold for jewelry production fell by 10% in the third quarter of 2011. The main reason for this may be the rising gold price resulting in more expensive gold jewelry. By contrast, the demand for gold as an investment increased by a whopping 33%, despite the fact that – in addition to any profit-taking – some institutional investors probably had to sell their gold to offset losses in other asset classes like stocks. In our view, it is also likely that part of the jewelry gold is rather seen as an investment asset than as jewelry: In the Middle East and countries like India, gold jewelry is often sold at very low premiums above the material value and is in fact often considered as an investment asset and used accordingly.
The total demand for gold in the technology and dental sector remained nearly constant over the previous year.
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