Gold Demand

Gold is used in jewelry, which accounts for approximately 50% of the yellow metal’s demand. India and China are the biggest markets for gold jewelry. These two large eastern countries combine to account for about sixty percent of global gold jewelry sales in 2013. When people speak of how in our day and age gold is moving east, jewelry is but one part of that equation (eastern central bank buying and high net worth investor buying are some other noteworthy inputs).

Investment Demand

Gold is used for investment purposes for even a modest ownership of physical gold protects a financial portfolio against downside risk without reducing long term returns. Per year, approximately 30% of new line gold supply is acquired by private investors.

Central Bank Demand

Central bank gold buying accounts for approximately 10% of annual global gold demand. Gold is being actively bought by government-endorsed central banks as reserves, to the tune of 100’s (and with China underreporting, perhaps 1000’s) of tonnes each year (NOTE: there are 32,150 troy ounces of gold per tonne).

Source: Visual Capitalist

Industrial Demand

Gold’s superb ductility, conductivity, biocompatibility, and corrosion resistance makes it a sought after precious metal in the industrial markets as well. Roughly 10% of new line gold supply goes to electronics, dentistry, high-technology industries (used in the space industry, fuel cells, nano tech, catalytic converters).

Gold is the most pliable metal in the universe; this makes it easy to work with. Gold can be drawn into wires thin enough for harp strings. One ounce of gold can be drawn into 50 miles of thin gold wire… 5 / 1,000,000th of a meter or five microns thick.

Gold can be hammered into sheets so thin it can be served on food or used as wallpaper. One troy ounce of gold may be hammered thin enough to cover more than 9 square meters (96.9 square feet) of a surface:

Source: Flickr & Science World

With all the diverse uses for gold (whether used in jewelry, technology, or being held in reserve by central banks and investors) means that across generations and cultures, different sectors in the gold market have risen in prominence at different times in the global economic cycle. This self-balancing nature of the gold market gives gold a consistent sustained base level of demand.

Being myself of the opinion that the world faces a major monetary crisis ahead, the demand for gold should not only remain robust for the foreseeable future, it is likely to kick into a mania phase at some point later this decade.

The next article in our Beginners’ Guide to Buying Physical Bullion will discuss the supply of gold.

» Gold Supply