Benn Steil


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Gold Supply and Demand

December 23, 2009


Central banks have been consistent suppliers to the gold market, at least up until the second quarter of 2009, when they became a source of demand. India bought a substantial 200 tons, illustrated by the red bar on the far right of the above figure, from the IMF in November. Russia, Sri Lanka, and Mauritius have also been buyers of late. Yet even if the rebuilding of central bank gold stocks turns out to be a long-term trend, in the short run the gold market is much more likely to be driven by volatile private investment demand, which jumped from only 8% of demand in the third quarter of 2008 to 86% in the first quarter of 2009 (see the orange block on the right of the figure). Investment demand is in part facilitated by exchange traded funds (ETFs) such as the SPDR Gold Shares, which has bought a massive 353 tons of gold since the beginning of 2009.

Economist: Central Banks and the Bullion Price
Blas: Gold-On the Flip Side
NYT: IMF Sells Gold To India

Post a Comment 4 Comments

  • Posted by LAWRENCE VEIT


  • Posted by adam

    Wouldn’t the IMF selling gold to India net out to zero as far as “Official Sector” supply/demand?

  • Posted by andy

    the biggest source of ‘investment’ in the 2000s was miners themselves, buying back [into price strength] hedges they put on [in price weakness] in the 1990s. A flip from an extra 400 tonnes or so ONTO supply to 400 tonnes or so ONTO demand, per annum; 10% supply to demand. You miss the incestuousness of gold.

  • Posted by Geo-Graphics

    Adam – Although the IMF sale will net out inside of “Official sector” as reported, it is worthwhile to consider that the IMF is really different than a sovereign central bank. The bar off to the right was intended to illustrate India’s fourth quarter purchase, not official fourth quarter demand.

    Andy – The mine supply is presented net of hedging. Your point is a good one in that another way to look at this would be gross mine production on the supply side and producer hedging on the demand side.

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