No Shortage of Gold Buyers

Heavy investment-led gold buying was the key factor driving bullion prices to their second-highest level ever last year, according to a new report published Thursday by CPM Group, a New York-based specialty consulting firm.

The last time prices were close to 2006's mean level of $607 an ounce was in 1980. At that time the average price hit $612 and gold peaked at $850 on an intraday basis.

"Lower sales by central banks and declining mine production aided the increase in prices, but the premier reason for the high gold prices was investment demand," states CPM Group's Gold Yearbook 2007 which was put together by a team of analysts led by company founder Jeff Christian.

The good news for the bulls is that historically high levels of gold buying by investors will likely continue through this year, the study concludes.

At least part of the story has been the continued success of the gold exchange-traded funds, such as streetTracks Gold Shares(GLD) and iShares Comex Gold Trust (IAU), which now hold more than 15 million ounces and 1.4 million ounces of bullion, respectively. Other ETFs outside the U.S. hold more gold.

Worldwide, buying via the ETFs accounted for almost 19% of the total 43.5 million ounces purchased by investors in 2006, according to estimates from CPM.

A year earlier such buyers added 46.7 million ounces across all products, bringing investment holdings accumulated since the start of the current bull cycle in 2001 to almost a quarter billion ounces. That compares with 20 million to 50 million for previous sustained rallies.