Gold Dynamics

 

Gold as the asset class has offered of the best returns for investors over the last decade except 2013. Gold prices have risen more than “five-fold” sin
Gold as Investment
ce the lows of 2001.  Presently it is trading around $ 1300 After touching all time high of $1921, it consolidated and made a low of $1180. Fundamentally, in the last couple of years,  “Quantitative Easing” (QE) in United States offered a huge boost to Gold and silver prices as through this US Fed try to depressed long-term interest rates to lower levels.
Application of Gold

Gold has a diverse range of industries and applications usage. Gold provides outstanding performance due to its unique technical properties. Primarily, Gold demands are coming from: jewellery, investment, central bank reserves and technology. Key differentiators , as an investment , are –

 

  1. Timeless investment
  2. Instant liquidity
  3. An effective diversifier ( a safe haven)
  4. Gold respond when you need to most
  5. Gold is the ideal gift.
  6. Gold offer tactical inflation hedge.

Factors affecting Gold Price

With this, briefly,  let’s look at several Fundamental driver for gold –:

1)    Central Bank holding & Exchange traded Fund (ETF)

2)    Various currency & especially dollar Index – Historically, on longer term, gold have the negative correlation with US dollar Index.

3)    China & Indian buying of gold. Historically, these two country are biggest gold importer. –

4)    Geo-political uncertainty like present Russia and Ukraine crisis.

5)    Hot money flowing from Global Equity to commodity.

6)    Other factor such as Investment Demand, hedging demand, Jewellery demand.

7)    Global Economic uncertainty 

 

Demand Side

 The demands from emerging market, especially from China and India, have been driving the gold demand. However

  • Historically, jewellery demand constituted around 50-80 % of the total demand, but its share has started to decline in favour of investment demand, since the emergence of global financial crisis and run up in the gold prices. The world’s gold jewellery demand is dominated by India, China, US and Middle East.

 

  • Industrial demand usually constitutes of industrial and dental uses and accounts for around 11% of the total gold demand. Gold is irreplaceable in most of the technology app application due to its unique properties

 

  •  The Investment demand has gone up to around 35% compared to 9% a decade back. Recently, Gold as asset class is used as portfolio diversification & the safe haven to hedge against financial distress and economic hardship.

Supply Side

 

Unlike other commodity, gold does not consume, but it gets accumulated. Gold supply          has to be looked very differently than any other consumption driven commodity. There are two major source of gold that is Mine production and recycled gold. South Africa, US & Australia is major gold producing country.

 

Demand Supply of Gold

 

Gold – Demand & Supply
Supply Side ( in MT)
2011 2012 % growth
Total Mine Production 2847 2828 -0.67%
Recycled Gold 1669 1626 -2.58%
Total Supply 4516 4454 -1.37%
Demand Side
Jewellery 1972 1908 -3.25%
Technology 453 428 -5.52%
total Bar Coin Demand 1515 1256 -17.10%
ETF 185 279 50.81%
Official Sector purchase 457 535 17.07%
Others -67 48
Total Demand 4515 4454 -1.35%

 

Conclusion

On short & medium term, recently, Gold had broken channel resistance and made high.  On longer term chart, after peaking at $1,921/oz in September 2011, Gold prices retreated & made a low f $1,180/oz in June 2013. This was overdue & a healthy correction after a 10 year bull run. We feel next few years , gold price should consolidate.

sysdumb

Should You Buy Gold and How Much | Jerry Robinson http://t.co/TG2qxucsFR
TheMadApe

Ape Alert: Should You Buy Gold and How Much | Jerry Robinson http://t.co/6nWliy7fFN
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