World Gold Demand Rising With Central Banks Buying Gold

Pinnacle DIgest writes: Demand has been rising sharply for gold over the last decade. Investors have lost faith in government controlled currencies. Given gold’s dramatic price increase over the last decade without huge corrections, you’d be right to assume that global gold mine supply is depleting. 

It is clear that central bank gold sales, mine supply and recycling of gold just aren’t meeting global demand anymore. If they were, gold wouldn’t be trading at $1650 in an economic environment that only has 2.2% inflation (if you believe what the Fed tells us). 

One of the main threats to gold supply not meeting demand is that fact that central banks have become net-buyers of the precious metal in recent years. Although they are still selling gold, sales are outnumbered by central bank purchases. What does that tell you about central banks' faith in fiat currency?

Scott Wright, an associate to Adam Hamilton at Zeal LLC, notes in his article that for 20 years (up until 2007) central banks were selling anywhere from 400mt to 500mt annually to the world. This was the equivalent of 20% of the world’s annual supply. That source of supply is now gone given that central banks have become net buyers. 

Wright goes on to explain the downfall in gold recycling and how it’s putting intense pressure on gold miners to meet the world’s demand. This is a tall order for an industry that is quite volatile in the amount of gold it produces annually. 

Wright explains in great detail how global gold mine production is collapsing under the pressure.

Click here to read his full article on gold demand and the many unknowns around where its supply will come from.