With four-fifths of recoverable reserves mined and growing global demand, prices unlikely to weaken for some time.
A mere 38,000 tonnes of recoverable reserves were left for excavation, equivalent to just nine years of global demand, said the World Gold Council (WGC). In 2010, global gold demand was reported at around 4,000 tonnes. Even if a new mine is discovered, it will take at least 10 years to start producing raw gold, due to several prior processes such as survey, environment clearances, feasibility study, viability, etc.
| ELUSIVE GILT | |||
| * Only 18 per cent of known global reserves left underground. This is equal to 9 years of global demand | |||
| *This means supply will be tight for at least 10 years | |||
| * Consumers’ appetite, especially from India and China, continues | |||
| * Several central banks eyeing gold to add to their reserves | |||
| * Price spurt will benefit Indian jewellers the most, since they are the largest producer of jewellery | |||
| Indian gold supply provisional estimates (tn) | |||
| Particulars | Q2 2010 | Q2 2010 | (%) change |
| Net imports, available for domestic consumption | 167 | 267 | 60 |
| Domestic supply from recycled gold | 20 | 10 | 50 |
| Supply from other sources | 3 | 3 | 0 |
| Total supply | 190 | 280 | 47 |
| Source : World Gold Council | |||
With other investments turning negative in return, gold has been the only one offering sustained double-digit returns for several years. The global price surpassed the benchmark $1,800 an oz again on Thursday. In India, on Thursday’s price was at another all-time high, of Rs 26,790 per 10g, up Rs 395 from yesterday’s close of Rs 26,395 per 10g.
“We do not see any sharp change in fundamentals until new mines with huge reserves are discovered. Globally, gold is proving the best hedge against all financial constraints. Hence, prices are unlikely to moderate in the near future,” said Ajay Mitra, managing director (Indian sub-continent) of the WGC.
Adding: “Central banks of many large and small countries are eyeing to increase gold holdings. Retail consumers’ appetite also remained unabated throughout developing countries, led by India and China. Hence, gold is set to remain upbeat in the near future.”
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Total availability above ground is 165,000 tonnes. A recent KPMG report suggests total gold holding among Indian consumers was 18,000 tonnes until two years earlier. Apparently, people are not willing to sell their gold holding in both jewellery and investment forms, with the purpose of accumulating wealth for future generations. Consequently, gold availability from scrap sales has been declining continuously. According to WGC, gold availability from scrap declined 50 per cent to 10 tonnes in the second quarter ending June. In the first quarter, too, it had plunged to 10 tonnes from 14 tonnes in the corresponding quarter of the previous year. Mitra said, “Scrap sales have reached saturation.”
Indian consumers continued buying gold in the second quarter of the current calendar year, resulting in overall demand rising 38 per cent to 248.3 tonnes as compared to 180.4 tonnes in the same quarter last year. In value terms, however, demand rose 70 per cent to Rs 53,800 crore from Rs 31,730 crore in the second quarter of the previous year.
India constituted 27 per cent of the global gold demand at 919.8 tonnes in the second quarter, largely due to robust fresh purchases in both investment and jewellery demand. At 108.5 tonnes, the Indian investment demand rose 78 per cent, while jewellery demand shot up by 17 per cent to 139.8 tonnes in the quarter under review.
Mitra suggested the state governments of Jharkhand and Chhattisgarh resolve their differences with the Centre and introduce an investor-friendly mining law to start excavating raw gold in India. “Mining is a state subject in India. Hence, the Centre must support the state governments to cash in on the price rise opportunity in gold,” he said.