GOLD

[wrongmove]

wren - some numbers here from the world gold council (I can't remember if they are goodies or baddies?). Shows that jewelry accounts for 68% of demand, and 51% of above ground stocks. The central bank of India to be!

 

Demand and supply

 

Demand

 

Demand for gold is widely spread around the world. East Asia, the Indian sub-continent and the Middle East accounted for 72% of world demand in 2007. 55% of demand is attributable to just five countries - India, Italy, Turkey, USA and China, each market driven by a different set of socio-economic and cultural factors. Rapid demographic and other socio-economic changes in many of the key consuming nations are also likely to produce new patterns of demand.

Some JewelleryJewellery demand

 

Jewellery consistently accounts for around three-quarters of gold demand. In the 12 months to December 2007, this amounted to US$54 billion, making jewellery one of the world's largest categories of consumer goods. In terms of retail value, the USA is the largest market for gold jewellery, whereas India is the largest consumer in volume terms, accounting for 25% of demand in 2007.

 

Indian gold demand is supported by cultural and religious traditions which are not directly linked to global economic trends.

 

Generally, jewellery demand is driven by a combination of affordability and desirability by consumers, and tends to rise during periods of price stability or gradually rising prices, and declines in periods of price volatility. A steadily rising price reinforces the inherent value of gold jewellery, which is an intrinsic part of its desirability. Jewellery consumption in the developing markets has been expanding rapidly in recent years following a period of sustained decline, but several countries, including China, still offer considerable potential for future growth in demand.

 

A Passion for Gold provides insights into the factors that motivate different groups of women around the world to purchase gold jewellery and some indications of what this implies for the outlook for jewellery demand.

 

Investment demand

 

Because a significant portion of investment demand is transacted in the over-the-counter market, it is not easily measurable. However, there is no doubt that identifiable investment demand in gold has increased considerably in recent years. Since 2003 investment has representing the strongest source of growth in demand, with an increase in value terms to the end of 2007 of around 280%. Investment attracted net inflows of approximately $15bn in 2007.

 

There are a wide range of reasons and motivations for people and institutions seeking to invest in gold. And, clearly, a positive price outlook, underpinned by expectations that the growth in demand for the precious metal will continue to outstrip that of supply, provides a solid rationale for investment. Of the other key drivers of investment demand, one common thread can be identified: all are rooted in gold's abilities to insure against uncertainty and instability and protect against risk.

 

Gold investment can take many forms, and some investors may choose to combine two or more of these for flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not always clear, especially since it has always been possible to invest in bullion without actually taking physical delivery.

 

The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are now a wide variety of investment products to suit both the private and institutional investor.

 

 

Industrial demand

 

Circuit BoardIndustrial and dental uses account for around 13% of gold demand (an annual average of over 425 tonnes from 2003 to 2007 inclusive). Gold's high thermal and electrical conductivity, and its outstanding resistance to corrosion, explain why over half of all industrial demand arises from its use in electrical components. Gold's use in medical applications has a long history and today, various biomedical applications make use of its bio-compatibility, resistance to bacterial colonization and corrosion, and other attributes. Recent research has uncovered a number of new practical uses for gold, including its use as a catalyst in fuel cells, chemical processing and controlling pollution. The potential to use nanoparticles of gold in advanced electronics, glazing coatings, and cancer treatments are all exciting areas of scientific research.

 

For more on industrial and scientific applications of gold >>

 

For the latest on the industrial markets and growing uses for gold visit www.utilisegold.com. www.utilisegold.com

 

 

Supply

 

Mine production

 

Gold is produced from mines on every continent except Antarctica, where mining is forbidden. Operations range from the tiny to the enormous. According to recent figures, there are around 400 operating gold mines worldwide. Today, the overall level of global mine production is relatively stable, averaging approximately 2,525 tonnes per year over the last five years. New mines that are being developed are serving to replace current production, rather than to cause any significant expansion in the global total.

 

The comparatively long lead times in gold production, with new mines often taking up to 10 years to come on stream, mean mining output is relatively inelastic and unable to react quickly to a change in price outlook. The incentives promised by a sustained price rally, as experienced by gold over the last half decade, are not therefore easily or rapidly translated into increased production.

 

Scrap

 

However, although gold mine production is relatively inelastic, recycled gold (or scrap) ensures there is easily traded supply when needed, and this helps to stabilise the gold price. The value of gold means that it is economically viable to recover it from most of its uses, where it is capable of being melted down, re-refined and reused. Between 2003 and 2007, recycled gold contributed an average 26% to annual supply flows.

Central banks

 

Central banks and supranational organisations (such as the International Monetary Fund) currently hold just over one-fifth of global above-ground stocks of gold as reserve assets (amounting to around 29,000 tonnes, dispersed across 110 organisations). On average, governments hold around 10% of their official reserves as gold, although the proportion varies country-by-country.

 

Although a number of central banks have increased their gold reserves in the past decade, the sector as a whole has been a net seller since 1989, contributing an average of 520 tonnes to annual supply flows in 2003-2007. Since 1999, the bulk of these sales have been regulated by the Central Bank Gold Agreement/CBGA (which stabilises sales from 15 of the world's biggest holders of gold). Net central bank sales amounted to just 500 tonnes in 2007.

 

 

Gold production

 

The process of producing gold can be divided into six main phases: finding the ore body; creating access to the ore body; removing the ore by mining or breaking the ore body; transporting the broken material from the mining face to the plants for treatment; processing; and refining. This basic process applies to both underground and surface operations.

 

The world's principal gold refineries are based near major mining centres, or at major precious metals processing centres worldwide. In terms of capacity, the largest is the Rand Refinery in Germiston, South Africa. In terms of output, the largest is the Johnson Matthey refinery in Salt Lake City, US.

 

Rather than buying the gold and then selling it onto the market later, the refiner typically takes a fee from the miner.

 

Once refined, the bullion bars (with a purity of 99.5% or higher) are sold to bullion dealers who, in turn, trade with jewellery or electronics manufacturers or investors. The role of the bullion market at the heart of the supply-demand cycle - instead of large bilateral contracts between miner and fabricator - facilitates the free flow of metal and underpins the free market mechanism.

 

 

 

[wren]

It does matter, because it means that rural Indians own a huge chunk of the above ground gold. 1,000s of tons, more than all the western central banks put together. This has been largely accumulated at much lower prices than today. So the "gold as money" theory has to content with the fact that the global economy will be in the hands of Indian farmers, and the market has to factor in the mountain of gold that would be unleashed by higher prices. People buy gold for a rainy day. We have rainy days ahead. People will want to cash in their insurance.

(I'll take tons as metric tonnes for the sake of simplicity)

 

So what is it with "rural" Indians specifcally?

 

1 000 metric tonnes divided by 1 000 000 000 people, approximately comes to about 1 gramme each, or am I mistaken?

 

Of course, more precisely the figure would be a bit higher but not so much.

 

So next...

 

[wrongmove]

(I'll take tons as metric tonnes for the sake of simplicity)

 

So what is it with "rural" Indians specifcally?

 

1 000 metric tonnes divided by 1 000 000 000 people, approximately comes to about 1 gramme each, or am I mistaken?

 

Of course, more precisely the figure would be a bit higher but not so much.

 

So next...

 

It's more like 90,000 tons total in jewelry, of which India probably owns about half (see above), but what is your point? It is far more than we have.

 

 

 

 

 

[wren]

the Indian sub-continent and the Middle East accounted for 72% of world demand in 2007

So that's 72% of "demand".

 

I haven't tried to verify but you suggested that the annual gold inflation was 2.5%. Too high I knew without seeking numbers.

 

And then you suggest that 0.72 of something like 0.02 determines what goes on.

 

Do you actually believe that?

 

What if institutional investors decide to long gold?

 

Will the Indians and Chinese etc. "underbid" them ensuring that the price is just "a bit expensive for an Indian wedding" but not too much?

 

 

 

[wrongmove]

So that's 72% of "demand".

 

I haven't tried to verify but you suggested that the annual gold inflation was 2.5%. Too high I knew without seeking numbers.

 

And then you suggest that 0.72 of something like 0.02 determines what goes on.

 

Do you actually believe that?

 

What if institutional investors decide to long gold?

 

Will the Indians and Chinese etc. "underbid" them ensuring that the price is just "a bit expensive for an Indian wedding" but not too much?

 

What determines the price of gold? The tons in vaults, or the gold that changes hands?

 

Mines produce about 2,500 tons a year which has to be sold. CBs offloading and scrap reclamation, while not adding to above ground stocks, also have to be sold. Investors only buy a tiny fraction of this supply. This gold cannot just sit in warehouses. If no-one is taking delivery, the price will drop until physical buyers emerge.

 

But if you would prefer to concentrate on the stockpiles, rather than the trade, then again jewelry dominates.

 

If instituational investors decide to go long, the first thing that will happen is that jewelry will stop selling. (Just look at the gold chart for the last year). So investors will have to increase their demand from about 15% to about 80% (the original 15%, plus jewelry's 65%) to push the jewelry market out of the way. Then they will have to cope with the jewelry selling to cash in on high prices.

 

Then, once these obstacles have been overcome, the way to the moon is clear.

 

Long way from where we are now though.

 

 

 

 

 

 

[safebetter]

Your analysis has proven to be quite accurate. Thankyou for your efforts.

 

I'll second that Ker. I'm assuming your Kernull on Axstones GIS thread as well. Several on there have been rubbishing your daily/weekly forecasting, stick to your guns.

 

Keep it coming - top stuff - even though I'm not trading I admire someone who can make the calls in this environment!!

 

SafeBetter

[Gatesy]

Do you have a good source to back up that specific 2.5% figure?

 

On another matter it seems that global production has been dropping since 2003 in spite of dollar rising prices. I wonder why?

 

Peak Gold

[safebetter]

OILB - a GBP denominated oil ETF, backed by Shell (so safe) and the underlying asset (oil) actually belongs to the investor, so no counterparty risk.

 

I put one toe in at USD 101 (OILB £47), several toes more at USD 92 (OILB £42), and a big foot at USD 72 (OILB £33). I'm now only about 10% down on this overall investment, and plan to double up if oil falls to USD 50 anytime in the next 3-12 months (which is possible, though not very likely). I will hold for 5-10 years if necessary, and xepect to see oil hit several hundred dollars in that time frame (i.e., 3-4 fold return)

 

I've also got one toe in BP, at 470p, and plan to triple this investment if it get back into the 350p region in the next 3-12 months, which is quite possible I think

 

Thanks bigtbigt.

 

That's one hell of a potential upside:

 

http://newsvote.bbc.co.uk/1/shared/fds/hi/...welve_month.stm

 

Might use some of that dry powder!

 

Sorry this is off topic!

 

SafeBetter

 

[wren]

It's more like 90,000 tons total in jewelry, of which India probably owns about half (see above), but what is your point? It is far more than we have.

And at what carat? (Indian isn't regarded alongside well known and trusted NA brands for example.)

 

But to address your whole (pretended) concern.

 

Does India dominate the gold market and thereby determine the price of gold?

 

Have they done so before?

 

I think the answers to both are no, but I welcome any evidence to the contrary.

 

Remember prices are set at the margin. And they are not set by poor people.

 

[wren]

If instituational investors decide to go long, the first thing that will happen is that jewelry will stop selling. (Just look at the gold chart for the last year). So investors will have to increase their demand from about 15% to about 80% (the original 15%, plus jewelry's 65%) to push the jewelry market out of the way. Then they will have to cope with the jewelry selling to cash in on high prices.

 

Then, once these obstacles have been overcome, the way to the moon is clear.

 

Long way from where we are now though.

There you have your answer (in bold).

 

[wren]

Peak Gold

Shshsh.

 

And don't mention silver.

 

[wrongmove]

And at what carat? (Indian isn't regarded alongside well known and trusted NA brands for example.)

 

99.5% pure. Who cares what brand? Gold is gold. All you need is an assay.

 

But to address your whole (pretended) concern.

 

What do you mean by that? I feel that is uncalled for.

 

Does India dominate the gold market and thereby determine the price of gold?

 

It's the biggest single buyer at 40%

 

Have they done so before?

 

For some years now

 

I think the answers to both are no, but I welcome any evidence to the contrary.

 

Please read the WGC council repost I posted above

 

Remember prices are set at the margin. And they are not set by poor people.

 

Exactly. By actual buyers and sellers of physical gold, i.e. predominately Eastern jewelry purchasers, half of which are Indian, and miners.

 

 

 

[wrongmove]

There you have your answer (in bold).

 

My answer to what? I have no idea what you mean.

 

I am pointing out that the gold supply can be greatly increased by holders of jewelry (much more than CBs), and investors will have to soak up this additional supply, and more, to drive a sustainable rise in price. Paper of course can fly up far more quickly. But physical buying would almost cease and the price would soon return to ground. This cycle has been repeated at least three times now. Here's to number 4!!

 

 

 

 

 

(All IMHO, DYOR etc.)

 

 

 

 

 

 

 

 

 

 

 

 

[G0ldfinger]

According to data provided by the LBMA, approximately 103,000 metric tonnes gold have been exchanged from Oct 1996 to Sept 2008. That makes approximately 8,000 tonnes a year. This shows that price setting in London alone (not to mention the COMEX) by far dominates jewellery related transactions in terms of volume.

[kernull]

I'll second that Ker. I'm assuming your Kernull on Axstones GIS thread as well. Several on there have been rubbishing your daily/weekly forecasting, stick to your guns.

 

Keep it coming - top stuff - even though I'm not trading I admire someone who can make the calls in this environment!!

 

SafeBetter

 

thanks guys, will be working on the dollar top chats this weekend, i think we got it today.

[dietcolaaddict]

thanks guys, will be working on the dollar top chats this weekend, i think we got it today.

 

Look forward to it Ker

 

P.S. hurry up and make another 4 posts - you merit GEI Expert status!

[wrongmove]

According to data provided by the LBMA, approximately 103,000 metric tonnes gold have been exchanged from Oct 1996 to Sept 2008. That makes approximately 8,000 tonnes a year. This shows that price setting in London alone (not to mention the COMEX) by far dominates jewellery related transactions in terms of volume.

 

But that is just round and round. Buys match sells. But the investment market only actually absorbs about 15% of each years new gold. The mines need buyers that do not immediately sell on. The western trade is based on physical gold, but it is basically a paper game as far as I can see. It does not consume much gold, just swaps it around.

 

My interpretation of the market generates testable predictions, i.e: if the price rises too much in rupees (say $850-$900 assuming dollar doesn't strengthen too much. Less in that case), Indians will seriously reduce their buying (it is Diwali soon so they will not stop) but they will almost stop, or even become net sellers after Diwali. This will, with a short lag, bring the price down again to nearer $700-$750.

 

I have watched this happen for the last two major peaks. I was not aware of jewelry during the first big peak, so I cannot say about that one. But I think it is ever decreasing circles due to the downturn. This makes gold production cheaper, meaning lower prices are possible without mines closing and restricting supply. Also, jewelry demand is cyclical.

 

 

So, can investor demand pick up the baton? Or does it even need to? Perhaps the gold can just pile up outside the mines while investors swap paper promises on COMEX?

 

Investor demand is counter cyclical, so strong now. You don't get much more counter cyclical than now! But I belive it will have to grow very strongly from here, and sustain that growth for some time, to see prices sustained over $1000, IMHO.

 

 

 

 

 

 

 

[rich6400]

thanks guys, will be working on the dollar top chats this weekend, i think we got it today.

 

From your last chart is gold still going down to the 200ma at about 680 dollars? Or have we hit the bottom and should I buy in now before it goes higher than 730 ?

 

Thanks

[G0ldfinger]

According to data provided by the LBMA, approximately 103,000 metric tonnes gold have been exchanged from Oct 1996 to Sept 2008. That makes approximately 8,000 tonnes a year. This shows that price setting in London alone (not to mention the COMEX) by far dominates jewellery related transactions in terms of volume.

To make this any easy example: if activity in the LBM just increased by 50% up to 12,000 tonnes a year (+4,000), jewellery volume (for simplicity 2,000 tonnes) would be double made up for.

 

In a financial crisis where investors wake up to gold for good, lack of jewellery demand won't matter much.

[Bobsta]

From your last chart is gold still going down to the 200ma at about 680 dollars? Or have we hit the bottom and should I buy in now before it goes higher than 730 ?

Are you buying in dollars, pounds, or another currency?

 

That's quite important. If the dollar turns (as many are waiting for it to do, and Ker suspects it may do from next week) you may see the price of gold rise in USD but move relatively little in GBP or EUR terms.

 

IMO the GBP is due a little bounce next week. Even though it's a turd, it's been over-sold this week.

[rich6400]

Are you buying in dollars, pounds, or another currency?

 

That's quite important. If the dollar turns (as many are waiting for it to do, and Ker suspects it may do from next week) you may see the price of gold rise in USD but move relatively little in GBP or EUR terms.

 

IMO the GBP is due a little bounce next week. Even though it's a turd, it's been over-sold this week.

 

 

I'm buying in euros. I was going to buy yesterday until I saw ker's charts. Today hurt! A rise in pog and euro down.

 

[Steve Netwriter]

Watch the second one

 

Actually I am very worried after watching this:

http://www.pbs.org/newshour/bb/business/ju...lman_10-21.html

http://www.pbs.org/newshour/video/module.h...02008&seg=5

.....

Pray...

 

Cheers

 

IMO you should be very worried.

 

[Steve Netwriter]

Careful Steve, you don't want to be jinxing this again do you! (keep them r******s tucked away for now!)

 

DON'T EVEN THINK ABOUT IT, STEVE......

 

YOU KNOW WHAT I MEAN!!

 

I think the downside 'price' risk is insignificant when compared with the global risks.

When I look at the recent currency moves, I am very very worried.

 

I'm not sure more than a couple of people have seen this:

 

Forex Discussions

Charts, Musings, Predictions

http://www.greenenergyinvestors.com/index.php?showtopic=3239

 

Last nights action was simply stunning. Look at the chart with "critical" on it

 

 

This is not a joke, this is a real probability for anyone thinking they can pick the best price on more than a small 'gamble' part of their portfolio.

 

 

 

[CIGA]

I think the downside 'price' risk is insignificant when compared with the global risks.

When I look at the recent currency moves, I am very very worried.

 

I'm not sure more than a couple of people have seen this:

 

Forex Discussions

Charts, Musings, Predictions

http://www.greenenergyinvestors.com/index.php?showtopic=3239

 

Last nights action was simply stunning. Look at the chart with "critical" on it

 

 

This is not a joke, this is a real probability for anyone thinking they can pick the best price on more than a small 'gamble' part of their portfolio.

 

 

 

LMFAO

 

LOL

 

that is THE best rocket pic on the internet.

 

Well Done Steve!!!!!

[wren]

Indians like their gold cheap, or at least not too expensive.

 

I agree with them.

 

So what's to be done?

 

Who are these people pushing up the price unnecessarily and should they be stopped?

 

Especially bearing in mind that gold is mostly a useless metal. Should not these people be reeducated to the contrary? Freedumb, huh?