This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

4 Reasons Gold Remains a Safe Haven

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 [gold] market [to] look to other areas of demand to make up the difference in the absence of price support from de-hedging activity."

One factor that could help is the advent of physically backed gold ETFs. Along with the GLD, the iShares Comex Gold Trust (IAU) and ETFS Physical Swiss Gold Shares (SGOL) hold around 1,400 tons of gold, more than half of annual gold production.

Over the past three years, cumulative gold supply has grown 59% while demand has surged 62%. This upward trend is expected to continue as investors seek ways to diversify their portfolio. As Ash points out, U.S. investors have accumulated $111 billion of gold exposure over the past 10 years versus $11 trillion of net worth, meaning that gold is still a very small amount of investors' wealth.

"We're going to go into a period like the tech market where there is a mania," says Rob McEwen, CEO of U.S. Gold (UXG), who thinks the market is about half of the way there.

"Your curve is like any other area of the market that suddenly people wake up to and say I have to have it and it goes parabolic ... at some point up there gold is going to achieve a point where its purchasing power relative to other assets is going to be at its zenith and that's when you want to start thinking about trading out."
2 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
IAU $12.42 0.69%
WFC $48.93 -0.06%
GLD $123.01 0.77%
SGOL $125.63 0.93%
AAPL $92.59 -0.70%


Chart of I:DJI
DOW 17,718.62 +57.91 0.33%
S&P 500 2,056.05 +5.42 0.26%
NASDAQ 4,729.6070 +12.5130 0.27%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs