The World Gold Council just released their Q1 report for gold supply and demand. Key stats and takeaways include:
Global gold demand in the first quarter of 2011 totaled 981.3 tonnes, up 11% year-on-year from 881.0 tonnes in the first quarter of 2010. In value terms, this translated to US$43.7bn, compared with US$31.4bn in the first quarter of 2010, an increase of almost 40%. This was largely attributable to a widespread rise in demand for bars and coins, supported by an improvement in jewellery demand in key markets.
During the first quarter of the year, investment demand grew by 26% to 310.5 tonnes from 245.6 tonnes in the first quarter of 2010. In value terms, investment demand was US$13.8bn. The main growth came from bar and coin demand which increased by 52% year-on-year, to 366.4 tonnes. In value terms, this represented a near-doubling of demand to US$16.3bn from US$8.6bn in Q1 2010.
My Notes: Physical demand is literally exploding with robust growth numbers like this. This is especially impressive given that the gold price was 25% higher during Q1 of this year versus last year. Investors converted twice as many fiat dollars into physical gold this year and I look for this trend to continue as even the conservative WGC stated: “suitable conditions remain in place to ensure that investment demand will maintain its solid growth path in the coming quarters.”
Jewellery demand in the first quarter of 2011 registered a gain of 7% from year earlier levels of 521.3 tonnes to reach 556.9 tonnes. This equated to a record quarterly value of US$24.8bn. India and China, the two largest markets for gold jewellery, together accounted for 349.1 tonnes or 63% of the total, a value of US$16bn. China’s jewellery demand reached a new quarterly record of 142.9 tonnes ($6.4bn) up 21% from 118.2 tonnes in the first quarter of 2010.
While the 7% gain is not huge, it is nonetheless very bullish to see jewelry demand increasing despite the huge jump in price. Many analysts had concerns about jewelry demand declining significantly in the face of skyrocketing prices and believed such a decline would halt any price advance. So far those concerns are looking illegitimate.
Technology demand remained steady in the first quarter at 113.8 tonnes ($5.1bn). A revision to the fourth quarter figures now means that 2010 was the highest year on record for gold demand in electronics at 326.8 tonnes or $12.9bn.
In Q1 2011, gold supply declined by 4% year-on-year to 872.2 tonnes from 912.1 tonnes in the first quarter of 2010. This decline was due to a sharp increase in net purchasing by the official sector and a fall in the supply of recycled gold, which was down 6% on year-earlier levels to 347.5 tonnes from 369.3 tonnes in the first quarter of 2010. Mine production increased by 44 tonnes year-on-year, a growth rate of 7% from year earlier levels, with negligible net producer de-hedging.
Naysayers have been warning gold bulls that all of the new mines coming online would flood the market with supply and depress the price. With supply down 4%, there are no signs of this taking place as of yet. Even if it did, supply would need to turnaround from a 4% decline to a 15% gain just to break even with the 100 tonne quarterly increase in global demand.
Central bank purchases jumped to 129 tonnes in the quarter, exceeding the combined total of net purchases during the first three quarters of 2010.
Wow! Central banks purchased more gold in just the first quarter of this year than the first three quarters of last year! This is where the big volume comes from and as long as central banks remain net buyers, gold prices are likely to continue much higher. Also, keep in mind this statistic is just the “reported” central bank purchases, whereas actual purchases are likely to be much higher. China, Russia and other nations have a way of suddenly announcing (a few years later), that they actually bought considerably more gold than reported.
China’s total annual gold demand topped 700 metric tons for the first time ever last year and is expected to keep rising over the next decade. China’s annual gold investment demand at the end of 2010 was 187.4 tons, up 71.1% from the previous year. And in the first quarter of this year alone, the country’s investment in physical bars and coins was 90.9 tons, nearly half of the full-year level for 2010.
Take a look at this chart of gold supply and demand in China over the past decade. The price can be manipulated in the short term and the pundits can call gold a bubble until they are blue in the face, but with the gap between supply and demand widening at this pace, the gold price has nowhere to go but up.
While the corrections such as we are currently witnessing can be painful and emotional in the short term, it is important to keep the bigger picture in mind and avoid the noise. Simply put, increasing demand and declining supply always leads to higher prices. This is basic Economics 101.
Furthermore, every dip or correction in the past decade has proven to be an excellent buying opportunity. I don’t see how this one will be any different. Gold is still far from its inflation-adjusted high of $2,400 – $5,000 and I think it will easily eclipse the high end of this range before a top is reached. Keep stacking.
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