Pro Asian Gold | Market Outlook

Market Outlook

As the world’s population continues to increase, as will its demand for gold.

Market Outlook |  Gold market size |  Gold Demand

Market Outlook

Gold is a precious yellow, bright and highly valued metal. It has been known, appreciated and used for thousands of years. The first documented goldmine in the world, estimated to be 4,000 years old, was discovered in Tbilisi (Georgia) in 2005. The origins of gold are considered to be “cosmic”. In 2013, the Harvard-Smithsonian Centre for Astrophysics noted that observations have found evidence that gold was created in a short gamma-ray burst resulting from “the collision of two neutron stars − the dead cores of stars that previously exploded as supernovae”.

Gold is among the rarest elements in the earth’s crust, where it is mainly present in its native form (about 80 per cent of the total metal worldwide); it can also be associated with other elements, such as silver − resulting mainly in the elements, electrum and tellurium − but also with copper or iron, among others. Gold is the most malleable and ductile transition metal, meaning that it can be shaped and bent easily. It is considered a heavy metal and one of the densest elements in the periodic table. Like silver, iridium, osmium, palladium, platinum, rhodium and ruthenium, it is a noble metal, which means that it presents an exceptional resistance to oxidation. However, gold can be dissolved in aqua regia. Gold is also a good conductor of heat and electricity, and a strong reflector of infrared radiation. Based on these characteristics, it is used as input in many industries, such as jewellery, dentistry or electronics, and for electrical applications. However, its softness and high prices ($1,428 per troy ounce, on average, between 2010 and 2014) tend to limit its use to sectors where no efficient substitutes have been developed, or encourage its mixture with other metals (e.g. silver, copper, platinum group metals). Gold is also used for monetary purposes (e.g. coinage), and as a safe-haven asset and investment vehicle during periods of economic uncertainty.

The history of gold dates back to at least 5,000 years ago, and demand for it has been expanding continuously in both quantity and types of uses. In recent times, after a sharp slowdown of world demand from 2000 to 2003 (by 25 per cent), the demand for gold started to rise again between 2004 and 2007. On average, 2,900 tons were traded annually during this latter period. In 2008, as a result of the global financial and economic crisis, demand for gold accelerated, reaching 4,515 tons in 2011 and later peaking at 5,042 tons in 2013. In 2014, demand declined by 17.5 per cent, to 4,159 tons.

Demand for gold mainly results from a combination of purchases made for jewellery fabrication, industrial purposes, investments in the form of bars and coins, exchange traded funds (ETFs) or similar products, and, net sales by central banks.

 

Gold market size

One of the obvious changes in the market is its overall size. In 1971, mine production was just 1,518 tonnes; in 2016 it had reached 3,169 tonnes, a growth rate of 1.5 percent per annum (pa) – although it peaked in 2015 at 3,217 tonnes and we are expecting further erosion in the sector.

The demand side of the market is obviously more variable than mine production, but grew at an average rate of 2.0% pa from 1,367 tonnes to 3,349 tonnes. The average growth rate in approximate annual dollar value terms was 9.5 percent and 9.9 percent pa, respectively, from $2.2 billion and $1.9 billion in 1971 to $127 billion and $135 billion in 2016.

We already know how much gold is present in the earth’s core, but how much can we find in more accessible areas of the planet? Exact numbers for the amount of gold on the planet always vary, because gold has been mined for roughly 6000 years. Some historians and gold experts put the figure at close to 150,000 tons of gold, while optimistic estimates go as high as 2.5 million tons. And there is plenty of gold left for us to mine, with the United States Geological Survey from a few years ago estimating that at least 50,000 tons of mineable gold had still not been discovered.

If we took one of the many estimates for the overall gold supply in the world, 165,00 tons in this case, we can get the total value of the world’s gold supply: roughly $8,487,000,000,000. More than half the gold that we have on our planet was extracted over the past 50 years, which may indicate that most of the current deposits we have discovered are beginning to deplete.

The days when we had massive gold reefs in Africa or massive nuggets of gold being discovered in California are long gone. But the fact that close to 50,000 tons of gold remain unmined suggests we may not have exhausted all the mineable gold sources just yet. And it does not appear as though the amount of gold being mined each year is slowing down anytime soon. The figure for 1990 was roughly 1,500 metric tons per year, with this figure having risen to roughly 2,500 metric tons by 2010.

Given the world’s population of roughly 7 billion, we can take our estimate of 165,000 metric tons and conduce that there is enough gold on the planet for each person to own around five gold rings. With the current price of gold, it would leave each person with roughly $1,200 worth of gold in their possession.

 

Gold Demand

As the world’s population continues to increase, as will its demand for gold. Not only are more people likely to want to own gold for investment purposes, but the amount of gold being used to create jewellery and for industrial purposes is only going to increase. Many gold investors believe the increasing demand for gold in the coming decades is going to further raise the supply of the precious metal, especially if our supply ever dries up.

If we take a look at the price of gold over the past 50 years, along with the past decade, we can see a clear trend of price increases. Even though there have been sharp increases or decreases in the price of gold from one year to another, the general trend is an increase in its price. And the most significant increase has taken place over the past 10 to 15 years. As people become less confident and certain of the stock market and other financial investments, they turn their attention to gold. And as more people wish to buy gold, the price of the metal continues to rise.