Gold stabilises at higher levels
New record price reached in the last fortnight
- The price of gold has risen by 1.3%, to $1,427 an ounce in a fortnight. The year-to-date performance is finally positive, with an increase of 1%.
- Commodity prices, as measured by the GSCI spot commodity index, have increased by 1.4% over the fortnight.
- COMEX non-commercial positions and ETF positions increased. Jewellery demand recovered in 2010 but so did supply
- IMF gold program sales finished in 2010 and went almost unnoticed by markets
Gold reaches new high on renewed weakness of the USD
Though turmoil in the MENA countries continues, it seems that associated risk is now fully priced in. Indeed, after a few days of sideways trading, gold has recoupled with US dollar variations in the last fortnight, reaching a new intraday high of $1,445 an ounce as the Euro touched a 4-month high of 1.40 against the USD.
Demand recovered in 2010 despite record prices, but so did supply
The release of new statistics shows that jewellery demand recovered last year despite record prices in gold, posting a 11% increase. Unsurprisingly, the 17% y/y rebound in jewellery consumption was mainly driven by India, the largest consumer. Industrial demand rose by 12% over the year as economic conditions improved in developing countries and emerging markets continued their expansion. Gold demand for investment purposes remained globally stable (+0.2% y/y) despite China’s posting a 70% increase in this sector. Investment demand constituted 35% of total demand in 2010. Gold recycling decreased slightly last year, albeit after two record high increases in 2008 and 2009. Mining supply rose by almost 10%. South Africa saw its gold production rise the most in 30 years as prices justified the extraction of previously less economically viable output. The IMF sold the remaining 181.3 tonnes of its gold sales program last year within the limits of the Central Bank Gold Agreement, sales that went relatively unnoticed by the market.
Economic recovery puts gold price at risk
Should the gold market come back to its pre-crisis state of 2007, this would trigger a rebound in jewellery consumption of 17% and a rise in industrial demand of 3%. However, the implied decrease in safe-haven needs following the decline in risk aversion would make investment demand drop by more than half, bringing total demand down by 8%. This would certainly have an impact on the gold price, which could be worsened by a strengthening of the USD.