Review of Gold in 2012
The gold price started into the year 2012 at US dollars 1,531 per
ounce. Over the full year 2011 the price of gold had increased by nearly
9% despite the two dips in September and November/ December. This made
2011 the tenth consecutive year in which the gold price increased.
By December 31st, 2012 the gold price has further increased – amid
high volatility – to roughly US dollars 1,657, i.e. by more than 8% from
the beginning of 2012. In euro terms the price increase was nearly 6%
over the same period.
Drivers of the gold price
The gold price is – as the price of any commodity – driven by the
basic laws of supply and demand. The demand for gold falls into four
sectors: The official sector, i.e. central banks, jewellery, technology,
i.e. industrial and dental sectors, and private investment.
In 2010 the central banks have developed from net sellers to net
buyers of gold, driven by a decrease of sales from developed countries
and an increase in buying activity from developing countries. Given the
low percentage of central banks asset allocation into gold in emerging
countries like China (2% versus about 70% in countries like the United
States, Germany and France), there is a solid chance that the official
sector will continue to be a net buyer of gold in 2013 and even beyond
2013.
Over the last decade jewellery demand for gold decreased in relation
to demand from other sectors, mainly the investment sector. High gold
prices and economic uncertainties will likely keep gold demand from
jewellery moderate in 2013.
Gold demand for industrial purposes and dental uses accounted for
just about 10% of total gold demand in 2011. As for jewellery demand,
high prices and potentially low/volatile growth will likely dampen
demand for gold for industrial uses in 2013.
Besides jewellery, the demand from the investment sector accounts for
more than 40% of total demand. Amidst the money and debt creation by
major economies and following the financial crisis, which started in
2007, the demand for gold as an investment reached record highs in 2011.
While during the previous gold price peak in the second quarter of 2010
the demand came nearly in equal parts from gold securities like Gold
ETF and physical gold in the form of bars and coins, this changed during
the latest peak in the third quarter 2011, when nearly 80% of
investment demand flowed into physical gold, e.g., in the form of
professionally vaulted gold.
This indicates that safety is a major concern for gold investors, who
usually view physical gold or vaulted gold as more safe than so called
‘paper gold’ (see our comparison of different forms of gold investment).
The second important driver of the gold price in addition to the
demand factors is the supply side. The supply of gold is composed of
mine supply, i.e. gold production, and gold recycling.
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