Investment Demand

Investment demand is considered by many analysts to be the most important X-factor in the fundamentals tables. Since many international investors see gold and the dollar as primary competitors, gold demands usually rise as the dollar gets weaker. These trends usually play out over lapses of years, not months, with the ten-year bull market of the nineteen seventies still remaining the most important example of that synergy. At the time of strong dollar years, gold net disinvestment ruled the charts. In two thousand-two and two thousand-three, with the dollar selling off in international markets the table has flipped over to be in favor of gold, with one hundred thirty-seven tons net profit in two thousand-two and an astounding five hundred ninety-one tons net profit for investment demand in two thousand-three. On an international basis, high-net-worth investors, investment funds, and private investors who have already bought gold stand at the vanguard of a trend that could last for a long time, given the dollar fundamentals commented previously. If the dollar’s outlook were to continue clouding the viability of markets of investment across the spectrum and around the world, we could see this influx of private investors from Japan, Europe, and hte United States multiply geometrically. This would put intense pressure on the coin and bullion supply availability. In two thousand-two and two thousand-three, the strong investment gold market more than made up for the static demand in jewelry fabrication.

Some explain in this short analysis why firm and rising gold investment demand could very well be our ally for some time to come:

• There are two reasons to invest in gold. First, there is the simple and obvious prospect that it may rise in price and thereby create positive returns for those of us who hold it or gold mining shares. The second reason is not quite so obvious, but it is more powerful, it is the fact that gold’s behavior is uncorrolated to other financial assets including bonds, stocks and currencies. When expected returns on financial assets are low, money flows in the direction of gold. It is also true that gold, being uncorrelated as opposed to inversely correlated, can rise while financial asset prices are also rising. It is these characteristics that qualify gold as a form of financial insurance... Gold at four hundred dollars is one of the few remaining bargains in a financial world that is a minefield of risk. Investors owe thanks to the central banks. Their repeated sales of the metal have kept the lid on the price. Without such sales, the price would already be several hundred dollars higher. Those with vast pools of wealth to protect, including institutional and private investors, can only hope that these outdated bureaucracies, managed by financially ignorant civil servants, continue their divestment process to facilitate acquisition of meaningful gold positions at attractive prices... The bull market in gold is well underway, while it will suffer periodic setbacks, it will not reach its completion until world governments restore integrity to financial instruments beginning with paper money. There is little to suggest that such a moment is within view.

Now you have a general understanding of what makes the gold market tick. This basic outline of a very complex topic has no intention of being a comprehension analysis of the demand and supply fundamentals of gold. Entire sites have been devoted to this analysis. The purpose of this is writing has been to give a basic introduction to the interplay of these statistics, generally provided by Gold Fields Mineral Services, along with some added conclusions and interpretations.

To make the fundamental gold picture brief: speeding demand and slowing down mine production joined with curtailed central bank participation on the supply side gives us an opportunity unlike anything else that has happened in the gold market since the United States abandoned its interventionist gold policies in the nineteen seventies. As a gold investor, whenever you start doubting the the long-term viability of gold, go back to the fundamentals for a refresher course. Here you will find the general reasons as to why gold is becoming a standard, it doesn’t only affect private investment holdings, it also does so in the world’s public treasuries.