Supply and Demand of Gold

The Supply of Gold

Physical gold is readily recyclable. Recycled gold (or scrap) ensures there is easily traded supply when needed, and this helps to stabilize the gold price. The consistent demand for gold and the market value for it make it economically viable to recover gold from most of its uses, whereby scrap is being melted down, re-refined and reused. Between 2003 and 2007, recycled gold contributed an average 26% to annual supply flows.

Gold mining exists in every continent except in Antarctica. There are at least 400 mines operating around the globe producing more than 2,500 tons every year. Mining production is very inelastic given its long lead time. Therefore, gold supply’s response to price changes will depend on scrap and another source, central banks’ holdings of gold.

Central banks and various supernational agencies or organizations (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 30,000 tons, dispersed across more than 100 organizations). On average, central banks hold, on behalf of their governments, around 10% of their official reserves as gold, although the proportion varies country to country.

Gold production can be divided into six main phases: finding the ore body; accessing 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.

The Demand of Gold

The physical gold is demanded for uses in the electronics industry, medical and dental industry, environmental technology, nanotechnology, engineering, aerospace industry but most of all, beauty and aesthetics.

Gold is at times regarded a safe-haven asset. It is even hoarded in physical form as an asset in the diversified reserves of many countries in the world. From the vaults of the US Federal Reserve to those held by newly emerging economic power houses like China, India and Middle East. Central banks of most emerging, developing and developed economies hold gold as part of their reserves.