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The
Table below shows the figures that the WGC commissioned from GFMS, which
confirms last year’s gold market activities in gold.
 
Clarifications
Central
Bank Buying
We need to clarify certain points above
if we are to understand the effect that these numbers will have on the
numbers for 2011. The net ‘official sales were in fact 87.2
tonnes bought by central banks in the open
market. To that figure, you must add the 403.3 tonnes the I.M.F. sold to give you the total amount
central banks bought in 2010. In 2011 with such additional
supplies no longer available in large chunks, we do not expect to see visible
purchases by central banks in the market except for Russia, who is still
buying [they bought 3.4 tonnes in January in line
with the pattern they showed in 2010. They have stated they will
continue buying upwards of 100 tonnes per
annum. We are informed that the bulk of this is bought from local
producers. So just how much gold central banks will buy in the
open market is difficult to project. All we can say is that
taking the amount over the IMF total of 403.3 tonnes
plus the amount the IMF sold in the open market [181.3 tonnes
plus 87.2 tonnes] we have a figure of the amount
central banks bought in the open market in 2010 of 268.5 tonnes,
told us that, that was their appetite for gold last year. We
expect that appetite to grow in 2011. This amount of even 268
tonnes would now have to come from the open market
in London.
China
We believe China is following the same
path (although using an intermediary agency) to keep such purchases out of
sight. Once every 5 years these are reported, when that agency
hands over the gold it has bought in the previous five years. The
last reported purchase over 5 years was an average of 91 tonnes
per annum. Of course, the purchases may have been different over that
period and may have matched growing local production. We do not
have the information available to know what amount the PBOC is buying locally
or whether they are buying direct off the international market and will only
know that in two years time, when they make their next public
statement. We know that China produced 340 tonnes
last year and imported over 300 tonnes.
The indications are that the People’s Bank of China is buying in the
international market too.
This is important because if the 640 tonnes for sale in China in 2010 was available to the
local retail trade, then we expect this figure to rise [guided by the figures
for the first two months of this year ahead of the Chinese New Year] by
70%. Hence, China could take in 1,088 tonnes
for the private sector in 2011 if the demand remains at these
levels. As you can see above, the numbers from the WGC show a
total of 579.6 tonnes used in the private market in
China in 2011. An increase of 70% over that figure gives a total of 985 tonnes projected
as private demand from China. This reinforces our belief that the PBOC
is buying in the international market as well. Such an
increase over 2010 is confirmed by the retail demand for gold in China since
the Chinese New Year.
Demand
factors in 2011
- With double digit growth
expected to continue for the next decade alongside a flat to growing
developed world overall, jewelry and technology sector demand will either
remain at current levels or rise.
- We must emphasize that the
market has accepted these higher prices for gold and will continue to realize
that gold is a precious metal. It remains the metal of choice for
jewelry irrespective of the price.
- Demand for gold bars and coins
will continue at very high levels in 2011 as there are no efforts visible
that will reinforce or reform the global monetary system. Food
and energy inflation is expected to continue at high levels, irrespective of
efforts by central banks to tackle inflation. This will continue
to make gold attractive.
- We do expect to see the shares
of gold Exchange Traded Funds to be sold or redeemed as investors move their
gold to another country or keep it at home. There remains a strong
belief among the institutions owning gold that confiscation by government
remains a strong possibility. [but not for the same reasons as in
1933] Holding gold in banks in ones own
country simple makes the process easier.
Supply
factors in 2011
- Newly mined gold production is
expected to rise by just over 100 tonnes in 2011,
but there is not the flexibility or sufficiently large deposits to increase
that figure. Many mining companies are struggling to replace
mined resources as it is.
- We do expect to see a fall to almost
zero of just over 100 tonnes in producer de-Hedging
in 2011. This will release that gold for other users.
- Official sector sales will
almost disappear being replaced by official purchases in 2011.
- Re-cycled gold should be re-named gold
sold by current holders for this is what it is. In the developed
world, profit seekers sell when they feel the price has peaked short, medium
of long-term. In the emerging world, in particular India,
long-term holders sell gold for personal situational reasons or because the
gold price has risen too far or too fast. They then sell with the
intention of buying that gold back once the price has made a new
‘floor.
Julian D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
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