Factors Affecting Gold Demand  Globally For The Foreseeable Future

Market Characteristics

The Gold Market is one of the most misunderstood, and undervalued sectors in the world today. While most financial analysts incorrectly identify the gold market as being in a bubble, the facts clearly prove otherwise.

Leading up to 2008 leverage in the banking sector of approximately 40 to 1 led to some of the largest bank failures in this century. If current trends in physical demand continue, the paper markets ability to deliver the actual physical asset is questionable, and there is a potential for the paper markets to be forced to settlements in cash. Having a fund backed by fully allocated and unencumbered physical gold is a powerful means of protecting wealth and taking advantages of any premiums created in such an environment.

Less than .6% of institutional capital globally is invested in Physical gold. By comparison the global bond markets are estimated at $82.2 Trillion, and is over 529.47 times the size of the annual physical gold market. Supply of gold from mines is flat with no expected increases of a substantial nature, and existing above ground stocks are limited in supply. According to International Strategy and Investment Group (ISI), if gold ownership rose from 0.6 per cent of total financial assets to only 1.2 per cent, still less than half its 1980s level, this would equate to an additional 26,000 tonnes, or 16 per cent of aggregate gold worldwide. This represents 10 years’ worth of current production.

Factors Affecting Gold Demand Globally For The Foreseeable Future

Supply from mining has remained flat for decades, and some analysts feel has already past peak global production as new resources of high grade gold deposits are continually more difficult to find. Additional mine production may also take as much as a decade to be brought online.

Continued Quantitative Easing will likely result in a continued devaluation of currencies, and lead to additional demand by Central Banks for gold as Strategic Monetary Reserves. Nations such as China need to add the equivalent of several years worth of the entire global mining supply to their reserves to be brought inline with gold reserves of other major economic powers. As China continues to position its currency as a global player, this criteria is essential for the currencies credibility.

As the population numbers of affluent consumers increases, the amount of gold available per person continues to become further limited. The estimated above ground gold is estimated at 165,000 tons. This number divided by the worlds 6.5 Billion people comes to less than .78 ounce per person. As the worlds population is growing in a more parabolic pattern and gold supply remains flat, the number of ounces per person will continue to drop. Purchasers of physical gold today effectively shut out others from ownership, with the only other option being paper representations of gold instead of the actual physical asset.