Everything about Gold

Gold is sought after, not just for investment purposes and to make jewelry, but it is also used in the manufacturing of certain electronic and medical devices. Investors also buy gold as protection from either an economic crisis or inflation.

History of Gold

  • Gold standard was a monetary system in which the standard economic unit of account, for example the U.S. Dollar, was based on a fixed quantity of gold
  • Issues such as the coinage problem described above and the introduction of paper money began to create problems for nations, especially since many were based on a bi-metallic standard of gold and silver
  • Paper money began to be valued too highly in gold, while there were also constant problems of supply imbalances between both gold and silver to back the paper money
  • Global economy has switched to fiat money
  • Fiat money is a government-issued currency that is not backed by a commodity such as gold.
  • Fiat money gives central banks greater control over the economy because they can control how much money is printed.

Gold Supply

  • Around 190,000 tonnes of gold have been mined in total
  • Below-ground stock of gold reserves is currently estimated to be around 50,000 tonnes, according to the US Geological Survey
  • Current estimates suggest that roughly 2,500 to 3,000 tons of new gold is mined each year
  • Based on these rough figures, there is about 20% still to be mined (10-30 years). But this is a moving target
  • New technologies may also make it possible to extract some known reserves that aren’t currently economical to access, but it is unlikely that large-scale gold mining will continue past 2075 without either huge mining technology advances or the discovery of currently unknown massive gold deposits
  • Recycling will have to become considerably more efficient to meet the needs of the global gold market, as a huge amount of gold still ends up in landfills each year

Gold Value Chain

  • Production
  • Delivery
  • Refinery
  • Metal Trader
  • The End Users

Drivers of Gold Prices in the Market

  • Inverse relationship to interest rates
  • Inverse relationship to inflation
  • Inverse relationship to the confidence of the market

Drivers of Gold Consumption

Gold Jewelry Consumption Q4 2019

RankCountryTonnes
1India136.6
2China132.1
3U.S.34.8
4UAE11.5
5Indonesia 10.7
Source: GFMS Gold Survey 2019 H2 Update & Outlook

Risk to Gold

  • Cryptocurrencies like Bitcoin will displace Gold as the hedge to the markets
  • If mining technology advances more rapidly than Gold demand, prices will fall, at least until demand catches up
  • Rise in gold alternatives: Silver, platinum, palladium
  • Base metals clad with gold alloys are widely used in electrical and electronic products, and in jewelry to economize on gold; many of these products are continually redesigned to maintain high-utility standards with lower gold content