Investor Gold Demand Hits All Time Record – China and India Grab 61% Of Total Gold Mine Production

February 16, 2012

Investor demand for gold during 2011 hit an all time high, fueled by soaring demand in China and India.  Total gold demand by China and India during 2011 amounted to a staggering 61% of all gold mine production last year.

The 2011 Gold Demand Trends report issued by the World Gold Council show a huge increase in gold demand and a small increase in global gold mine production.  This continues a trend that has been in place since 2001.  Despite an almost 600% increase in the price of gold since 2001, global gold mine production has increased by only 7.7%.

Typically, a large increase in price will bring forth additional supplies as producers rush to take advantage of higher prices.   This has not happened with gold due to the depletion of existing gold reserves and the inability of miners to discover and develop new gold deposits.  The continuing increase in gold demand and the lack of new supply will eventually result in gold prices higher than most people can imagine today.

Highlights of the Gold Demand Trends report are summarized below.

  1. For the first time ever, on a dollar basis, gold demand hit all time record highs at $205.5 billion, representing 4,067.1 tonnes of gold.
  2. Investor demand for gold hit all time record of 1,640.7 tonnes, up 5% from the previous year.
  3. Demand for gold by China soared 20% last year to 769.8 tonnes and demand by India, despite currency weakness, was 933.4 tonnes.  It is expected that China will become the largest gold market in the world during 2012 based on continued record setting demand.
  4. Global gold production increased by only 4% last year to 2,809.5 tonnes.  The combined gold demand of 1,703.2 tonnes by China and India consumed 60.6% of all new gold mine production.  It is projected that the supply of new gold will remained "restrained" for the foreseeable future.
  5. The desire to protect wealth accounted for surging gold demand in Europe as the European Central Bank engages in a massive money printing campaign to prop up the insolvent banking system.
  6. Central banks continued to buy gold during 2011, increasing total purchases to 440 tonnes, up by 77 tonnes from last year.
  7. The amount of gold available to meet demand is being restrained not only by low mine production but also by reduced supplies of gold from recycling.   Despite a 28% increase in gold prices last year, the supply of recycled gold declined by 2% to 1,611.9 tonnes.  According to the Gold Council, this implies that "market supplies are drying up and that consumers may be holding on to their gold in the expectation of higher prices."
  8. Investors are showing a strong preference for physical gold as seen by the investment flows into bar and coin compared to ETF demand.   Demand for gold bar and coin during 2011 totaled 1,486.7 tonnes compared to ETF demand of only 154.0 tonnes.
  9. Gold demand by ETFs increased in the 2011 fourth quarter over the comparable period last year, but total demand during 2011 of 154.0 tonnes was far below ETF gold demand of 367.7 tonnes during 2010.

The Gold Council bullishly notes that the gold market is unique in that it is driven by a "diverse set of factors" and multiple sources of demand.

Comments

By Robert Allan Young on February 17th, 2012 at 3:19 pm

Spot market gold prices are down 1.9 percent over the past week. The numbers, well the latest price was $1,714.66 compared with the high of $1,747.50 per troy ounce. The price has fallen in six out of the last seven trading sessions but gold still remains up 10 percent on a year-to-date basis.
There is an incredible amount of pressure on currency and commodities worldwide due to the the lingering uncertainty in the Eurozone. This is of significance to gold investors, as a chaotic default in the country could intensify gold price volatility. Gold prices could fall further, as traders may look to a flight to quality and stability in dollar denominated assets.
The physical demand for gold is down in India. Strong currency valuation for India has impacted the sale of gold bullion, as gold traders in the country have reduced consumption. This will be of interest to investors as India has traditionally been the world’s largest market for physical gold. Gold generally sees the highest sales volumes in India from October to December, particularly with the festival of Dhanteras in November; however, the Akshaya Tritiya festival in May has also demonstrated recent success.
China is making up for slowing Indian demand. The country consumed 769.8 tons in 2011. Jewelry demand was up 13% and investment demand grew to more than 250 tons. But the worry is if Indian demand slows, Chinese demand won’t add the extra boost it has been to the gold price.
While China has some pressure to keep buying gold, investors — those on the futures market and those who buy the ETFs – have their work cut out for them as well. The OTC demand fell for the first time since 2008, down 7%, and ETF inflows were only 154 tons, less than half of 2010.

By Bullion Syndicate on February 19th, 2012 at 10:10 pm

I think long-term, we will continue to see higher and higher prices as more people are waking up to the hard reality of global money printing.

I thought it was quite interesting when “60 Minutes” showcased the gold demand in India because 1) this was the first time in a long time that I saw a gold-themed segment in a popular, mainstream television show and 2) it exposed the dichotomy of how Americans view gold as opposed to other nations’ views.

For me, the key take-away was that the Indians do not view gold purchase as an act of consumerism, but rather as an investment. The program showed that all people in India, regardless of class or economic status, strive to attain gold, no matter what the cost. And it will be this desire for hard, real assets that will move up developing nations into the first-world sector, while former economic powerhouses, such as the U.S., will face a severe decline.

The truth hurts but we can’t sugarcoat these problems any longer!

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