Report Summary
- On the supply side, mine output will face a steady decline pushing up gold prices. Declining ore grade, appreciation of the Rand, Australian dollar and Renminbi and geo-political risk associated with new plays are some of the contributing factors.
- Official sector sales of gold is set to decline as central banks start showing reluctance to swap their gold reserves for foreign currency. In September 2009, the third Central Bank Gold Agreement (CBGA3) took effect, placing a combined 400 tonne per annum cap on gold sales down from 500 tonne set by its predecessor CBGA2.
- As investment capital seeks shelter from the US dollar, investment demand for bullion should accelerate driven by ETFs and global central banks, most notably, China. The country currently has only 1.9 percent of its foreign reserves in bullion as against 34 percent in the developed world. With its policy of diversifying away from US dollar, China will effectively provide long term, sustainable support for gold prices.
- Gold consumption demand will however have a moderating effect on the upward price movement in the short and medium term. Inflation, if it sets in will dig into the savings of consumers in the emerging world, notably India and China. This combined with high gold prices will reduce purchasing power for the vast majority of middle class consumers in these countries.
N.B. Complete report available on request
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