Gold 2009 Supply and Demand Impact on Gold Price

last week i was reading the article , published on Feb 27, 2009 in The Market Oracle which predicted the gold price above $1000 level based on the supply and demand impact and today i seen in a news that gold price pass the $1000.00/oz mark which is the highest price level. Price is truly related to the supply and demand of gold. In article author mention the following comment. " We conclude by emphasizing that demand through gold Exchange Traded Funds will dominate the gold market and take gold to new heights well above $1000."

According to the article total projected demand for 2009 is 3,493.40 to 4,171.02 tonnes. Where as the supply are 3,493.40 tonnes. That means the demand is higher then the supply. Article also shows the data of Gold supply from mine production, scrape and Central Banks. From article i can see the new pattern of gold demand. people are investing more in Gold. so investment demand rise by 40% to 702.8 tones. article indicate the big change in the Gold E.T.F which will rise up to 677.62 to 1,355.22 tones.
In my opinion there are many factors affect the gold price. In developing countries people are buying more jewelery, I think fear of inflation, recession and weakness in dollar also increase the gold price. As per economic principle when price will go higher then demand will be going to decrease. so i think in near future the demand of gold is going to decrease.



Connor said...

I believe the supply and demand of gold mainly revolves around weakened currencies. So yes demand is definitely up because people fear our wobbly financial system in this weakened economy. If the value of the U.S. Dollar totally collapsed people can still buy and sell gold all around the world.

I just read an article that said oil producing countries used to have their profits paid in U.S. Dollars because it was deemed the world's 'safest currency' now those countries request to be paid in gold.

Sooner or later however the market/economy is going to get better and people are going to want to sell their gold and buy other things like new houses, cars businesses, etc and you will see the value of gold fall.

Amelia said...

The supply and demand of gold is directly related to the fear a weakened U.S. dollar. People are scared stiff to think that other currencies could be stronger and more valuable than the "almighty" U.S. dollar. Therefore, the demand of a more stable and universally valuable substance is rapidly increasing.

Even my own father is getting caught up in this "gold frenzy." He is so convinced that the U.S. dollar is going to become useless that he wants to convert all of his investments into gold. It's silly, but that's what he and his friends truly believe.

Yes, we were the strongest currency in the world for a long time, but this same thing happened to the U.S. dollar during the depression.
The entire world is being effected by the economic downturn, but this is just a part of the business cycle and it will turn around eventually. It's all just a waiting game. Everyone just needs to calm down, be conservative, and wait.

Dr. Tufte said...

Michael: for Block 1 I am going to waive penalties for spelling and grammar, but in the rest of the semester this post would not earn a passing grade.

I think Michael has fallen for a non-economist using economic terminology. "Demand" isn't a number, as implied by the source article. Neither is supply. What they're talking about here is point forecasts - that don't have any relation to the elasticities of demand and supply. In some sense, then, this is piece is an example of what Managerial Economics is not about.

Now, there are certainly factors shifting demand to the right - related to global economic uncertainty and people shifting their wealth out of dollars. And ... one would expect (although I'm no expert here) that gold producers are ramping up production in anticipation of making more money. The net result is then probably not far off from no change in price at all.

Having said that, the big factor that Michael and the commenters are missing (though Amelia is getting close) is that the demand for gold is elastic with respect to current events, and the supply isn't likely to be very elastic at all with respect to current events. So, negative events that make investors want to shift into gold are likely to lead to big price run-ups. But, the reverse can occur as well (as we saw with gold in the early 1980's).

Rachel said...

I read an article and block. Here I beleive gold demand increase durring recession. In today market world secqure currency weak. Today stock market and houseing market are un secqure. Supply and demand of gold directly releted with dollar and other investment thing. I agree with Michael concept of demand and suplly. But I belive this gold demand will decrease when global economy condation imporve. So I beleive gold is substitute good in this current market. I beleive gold price decrease in next few years.