4. Supply and Demand
The supply and demand factor is pivotal in supporting high gold prices. From 2005 to 2009, the gold industry received 59% of its supply from mining production, 31% from recycled or scrap gold and 10% from central bank sales. Central banks are no longer selling their gold, the amount of scrap gold is falling as investors hoard the metal, which leaves just mine supply.
In the World Gold Council's recent Gold Demand Trend report for the second quarter 2011, mine supply surprisingly grew 7% to 708.8 tons but total supply was unchanged as gold producers de-hedged and sopped up excess gold.The above ground supply is estimated to be around 165,600 metric tons. Half of that is in the form of jewelry. Of the 82,500 tons remaining in bullion, 30,000 tons are owned by central banks and the rest is privately held. Total gold demand for the second quarter was 919.8 tons, outpacing the growth in mine supply. Gold has, however, lost a big buyer recently -- the miners. Miners had been buying gold from the open market to eliminate hedging positions, where they had previously locked in gold sales at a certain, lower, price. Now, all the big hedges have been eliminated. The move in of itself is a bullish indicator, but the role of producer de-hedging had been instrumental in pushing gold prices higher and without it the market loses a key driver. Matthew Piggott, metals analyst with GFMS, says the end of de-hedging will force "the
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts