The high price of gold has contributed to a 13.3 percent decline in the use of the precious metal for jewelry in 2006, according to CPM Group’s Gold Yearbook 2007, released Thursday. Overall, there was an 11.2 percent decline in gold use in fabricated products.
Jewelry is the largest end-use of gold. Non-jewelry gold use in fabricated products actually rose in 2006, and is expected to rise further. Those uses include electronics, dental alloys, and medical devices, are less price elastic.
Jewelry demand is sensitive to gold prices, however, and declines when prices rise sharply. The 187-page Gold Yearbook adds that in many markets, including the crucial Indian and Middle Eastern markets, there is a shift away from the traditional use of gold jewelry as a form of investment toward purchases of gold in bullion and coin form instead, by some of the types of investors active in those markets.
Gold prices rose to a peak of $721.50 on May 11, 2006, as waves of investors from the Middle East and India to North America and Europe poured money into gold bullion, coins, jewelry, and other investment products. More investors are spending more money on gold investments for a longer period of time than ever before in history, fueled by political, economic, and financial concerns, according to the report.
The rush of investors into gold remains the single most important factor in determining the price of gold. Gold has risen from $256.60 in early 2001 to $721.50 last May. Prices dropped off sharply to an intraday low of $546.40 on June 14, 2006, but just as quickly turned around once more, trading between $566 and $690 since that time.
Prices remained strong into 2007, rising to $689.80 on Feb. 26. This increase in price reflects the fact that economic, financial, and political uncertainties over the past six years have triggered the largest bull CPM Group Precious Metals and Commodities Research, Consulting, Asset Management, and Investment Banking market in gold in history, measured in terms of the amount of gold being purchased by investors, the numbers and types of investors involved, and the longevity of the period of strong investor interest in gold.
Investors added 43.5 million ounces of gold to their collective holdings in 2006. This was down slightly from 46.7 million ounces in 2005, but remains far above pre-2001 levels. Investors are projected to add another 39.7 million ounces of gold this year on a net worldwide basis, according to the report. This compares with annual average net purchases of 9.2 million ounces of gold by investors from 1950 through 2000. Investors around the world continue to buy large volumes of gold in bullion, coin, and jewelry form. The amount of gold that may be purchased may decline from 2006 levels during 2007, but the overall pace of investment demand is expected to remain very high by historical standards.
Overall, investors have bought 241.5 million ounces of gold between 2001 and 2006, according to the report. That is nearly one-quarter of the 1,044.9 million ounces of gold that investors are estimated to own collectively around the world. Since 2006 private investors have held more gold than central banks.
The increase in prices has contributed to changes in gold’s supply and demand trends, according to the report. Mine production had been expected to expand on a global basis in 2006, but is now estimated to have declined 2.4 percent to 61.4 million ounces in 2006. Production problems at a large mine in Indonesia was largely responsible for the drop in total mine production, although output also was lower in major producing nations from South Africa to Australia, Canada, and the United States. Production in other countries, from Peru to Tanzania, continues to expand, as new mines are developed in response to higher gold prices.