Economics - Analysis: GOLD

Introduction

Today Gold has been termed as a commodity which has intrinsic value. Majority of the people when they think regarding natural resources and commodities at once oil and gold are two main items that click in the mind. Due to this, people have start trading these commodities in the market and hence their demand and supply increasing in the world. This paper will focus on the Gold price in the world market and based on current demand and supply the future price of Gold will be stated.

Discussion

The dynamics of Gold demand &supply are the main key factors that determine the gold price. In order to understand the world price movement of the Gold, it is essential to understand the demand and supply of this community. The worldwide demand for gold in third quarter was 1084.6 tonnes worth 57.6 billion dollars. This demand comprises usually from investors, industrial consumption and jewelers. Newly fresh gold that arrived into the market comes directly from new mine production and recycling of gold (World Gold Council, 2011, pp. 2).

Demand of Gold

According to the World Gold council, the demand for gold in the in third quarter was 1084.6 tonnes worth 57.6 billion dollars that is 10% up from the previous quarter but it was 11% decline due to notable reduction in bar and coin purchases in the year earlier level. The decline is also experience by the jewelry and Technology sectors while there was strong rise in ETFs.

Source: Thomson Reuters GFMS, World Gold Council

The following chart indicating the demand change by sector category. There was an overall drop in demand for gold comparing from the historic level which is 11% in Q3'11. Due to the drop in coin and bar in China and India which were two major markets, there was 68% year to year decline while it was cover by an enhancement in ETF inflows. Hence, this also resulted in gold supply contracted with 2% on yearly bases. Moreover, the entire gold component supply reduced totaling the 1188.3 tonnes (lbma.org.uk).

Source: Thomson Reuters GFMS, World Gold Council

The main contribution was by Bar and coin investment towards the fall in Gold demand as the investment was reducing since 2011. This was due to lack of strong inflows from Western countries market. This segment demand was 30% less from last year that was 293.9 tonnes which converting 32% reduction value worth of $15.6 billion. Europe investors accounts for 50% i.e. 128.1 tonnes reduction in Bar and Coin Demand and they were less hostile in purchasing the gold compared to last year. As far as India is concern, they were contributing 12% growth in gold demand (aranypiac).

The following graph is showing the investment behavior which is influenced by many factors.

Source: Thomson Reuters GFMS, World Gold Council

The physical demand of growth has been literally bursting with healthy growth number stated above. This indicates an impressive picture given that the price of gold was 25% higher during the Q1 of this ...