Investment in gold and silver are slowly making their way into the mainstream, and investors are increasingly confident about taking their chances with these precious metals. The USA is seeing so much of deficit spending now, that investing in these metals is becoming a refuge for many. There is always a debate about which is a better investment option, gold or silver. Here are a few things to note while choosing what’s suitable for you.
Global Gold Demand Up; World Gold Council Establishes Conflict-Free Gold Standard, proposes gold collateral plan for Eurozone members
The global demand for gold in 2012 has remained more consistent as compared to 2011. The demand for the yellow metal in the third quarter of 2012 was significantly higher than the quarterly average of the past five years, according to the Gold Demand Trends Report released by the World Gold Council.
Worldwide demand for ETFs in Q3 2012 rose by a whopping 56% as compared to Q3 2011. To take things further, there was a substantially higher demand for gold as an investment option rather than jewellery. While investment demand spiked by 12% in 2012 as compared to 2011, jewellery demand went up by 7% in the same time frame.
The story, however, was different in China. Gold demand decreased by 8% in Q3 2012 as compared to Q3 2011. The cause of this was the largely negative outlook on the nation’s economy.
In other news, the World Gold Council recently published the Conflict-Free Gold Standard with comprehensive inputs by gold mining conglomerates, supply chain representatives, members of civil society, and governments. This was undertaken in an effort to address and combat the misuse of mined gold being used to fund civil unrest and conflict in politically unstable regions.
The Conflict-Free Gold Standard strives to ensure transparency and institute trust in gold supply chains. It also outlines principles that require mining companies to refrain from causing or escalating violent, armed conflict and other human rights atrocities. The Standard elaborates on the fact that gold mining can contribute to social and economic development worldwide if undertaken responsibly.
Gold demand in Q3 2012 increased by a notable 10% compared to Q2, but dipped in comparison to Q3 2011. Furthermore, investment options like gold coins and bars or bullion also witnessed a decline of 16% as compared to Q3 2011.
The trend which stood out in Q3 when it came to investments was that of gold ETFs, all while the demand for gold jewellery and its use for technology saw a downward trend, that is 2% and 6% respectively, in the same time frame.
The gold supply in 2012 waned, with a yield of 1188.3 tons. Despite this, a majority of individual buyers continued buying the metal as an investment even though investment demand was lower than in Q3 2011. The diminishing demand for gold bullions and coins was reflected in the 30% decline as compared to the previous year. However, it is to be noted that demand for these instruments had touched exceedingly high levels in 2011 relative to the preceding five years.
The best performing gold market in Q3 2012 was India, which witnessed a 7% and 12% increase in gold jewellery and investment demand respectively. The Indian market alone accounted for about 30% of the total consumer demand for the yellow metal in 2011, due to the festive season and positive outlook on the economy and gold prices.
The converse, however, was apparent in China. China’s gold market took a beating due to a relatively negative outlook on economy and slower growth at present, represented by a 12% decline in demand for gold coins and bars (on a year on year basis). That said, this pattern is believed to be just temporary, and the Chinese gold demand and supply statistics are expected to improve in the long term.
Last but not least, central banks, which have increased their purchases of gold reserves in the past few years, accounted for approximately 9% of the total gold demand in the Q3 2012 phase.
One of the biggest markets for gold in the world is India, a country which accounted for a whopping 745.7 tons of gold consumption in 2010. India was always traditionally the world’s largest consumer of the yellow metal, with Indians buying approximately 25% of the world’s gold. A major chunk of purchases are in the form of jewellery, a buying pattern that becomes even more pronounced in the festive season during and after the second half of the year.
In 2012, however, China overtook India as the world’s single largest consumer of gold. That said, Indian consumers are still highly involved in planning their gold purchases. In fact, an estimated 75% of Indian women claim that they constantly look around for new gold jewellery designs. In a country with immense cultural and religious diversity and an adherence to certain traditions and customs, it is not surprising to see that over 50% of gold jewellery is bought during the wedding season. Anniversaries too witness their fair share of gold purchases due to their being viewed as ‘aspirational occasions’.
Hinduism is the dominant religion in India, and one of the most auspicious days in the Hindu calendar is Dhanteras. Dhanteras, also known as Dhanatrayodashi, is celebrated just before the major Hindu festival of Diwali. On this day, the goddess of wealth, Lakshmi, is worshipped mostly by the trading and business communities to bring about well-being and prosperity. Dhanteras is marked by the large scale purchases of gold.
Dhanteras is not the only auspicious day that calls for nationwide gold purchases in India. The occasion of Akshaya Tritiya in the summer month of May is another day on which Indians go out of their way to buy gold jewellery, coins, and bullion.
Indian gold jewellery is acclaimed the world over for its high caratage, intricate designs, and unparalleled craftsmanship.
China became a heavyweight in the global gold market when it overtook South Africa as the world’s largest producer of gold in 2007. This was a landmark, given that South Africa had consistently occupied the prime slot amongst the gold producing countries of the world since 1905.
China set another benchmark for itself in 2012, when it overtook India as the world’s largest consumer of gold. The country is now also the fastest growing gold jewellery market in the world, as much as it is home to some of the world’s most discerning gold buyers. Well over 80% of Chinese gold jewellery is comprised of 24 carat gold, which says a lot about the demand for pure gold in the country.
A majority of gold jewellery purchases in China are usually made for weddings. Brides are often given gold during their wedding ceremonies, and around 75% of women in urban China own at least one gold statement piece. Given the economic growth in rural China as well, the figures for national gold jewellery purchases are expected to rise in the coming years.
Two out of every three women in China consider gold jewellery to be more than a personal style statement. In fact, an overwhelming number of Chinese women believe gold jewellery is a reliable investment option as well and are acutely aware of the value of the pieces they own.
China’s boom in gold consumption means that retailers in the country are increasingly looking to smaller cities to foster an appetite for the precious metal. The increase in spending power and wealth in these areas may only reinforce China’s current position as the world’s largest consumer of gold despite the economic slowdown of late. The country’s gold jewellery market is now looking to penetrate third and fourth-tier cities in the country.
The United States of America is one of the world’s biggest gold markets. In fact, the U.S., along with India, recently overtook Italy as the world’s biggest exporter of gold jewellery. Italy, which was once the biggest producer and exporter of mass-produced gold jewellery worldwide owing to luxury brands like Damiani, Bulgari, and Roberto Coin, lost out mostly due to stiff competition from low cost producers and high tariff barriers.
The gold market in the USA is one where gifting is a dominant trend, with more than 50% of the value of retail gold jewellery being created by pieces that cost over $1,000. Like women in China and numerous other nations where gold jewellery is viewed as an investment rather than just a personal style statement, American women often hand down their pieces to the future generations.
The traditional holiday season in particular witnesses a spurt in gold gifting, although gifting gold jewellery for no occasion in particular is also a sustained trend in the USA. This is because spontaneous gifting, more so by men, is gaining popularity as a suitable way to express a tender message with a public statement.
Although the U.S. does not have a festive season or marriage season similar to the ones in India, gold jewellery features prominently in American weddings. Every three out of four brides in the USA have been proposed to with gold rings. However, the brides aren’t alone in this regard. Many bridegrooms also receive and wear gold wedding bands, a custom that originated in the country as far back as the early 20th century. Gold rings in the U.S. market are not just popular- they are a symbol of love and commitment.
Most of the gold jewellery in the USA is typically 18 carats. Gold of the purer variety is not as common since it is considered too ‘soft’ for use. Higher purity levels, however, are the norm in India, the Middle East, and China.
In its natural form, gold is found abundantly as a solid in siliceous rocks, and in the form of granules, nuggets, or even powder in riverbeds. Although many believe gold also exists in vast quantities at the bottom of the world’s oceans, no one has been able to mine this purported gold to date.
Gold producing regions
The yellow metal is one of the rarest elements in the Earth’s crust, and one-fourth of it is found in South Africa. Australia, Russia, Canada, Russia, and the United States are the other leading producers of gold. Nevada, South Dakota, Alaska, Montana, and California are notable gold-producing states in the USA.
Grasberg Gold Mine in Papua, Indonesia, is believed to be the world’s largest gold mine. Although gold output fluctuates on an annual basis, Grasberg has held onto its prime position for several years. It is also the world’s third largest producer of copper, and is owned by Phoenix, Arizona-based Freeport-McMoRan through a subsidiary. Its output in 2011 amounted to 1,444,000 ounces.
The other large gold mines, in no particular order, are:
- Cortez, owned by Barrick Gold and located in Elko, Nevada. Its output in 2011 is believed to have been 1,421,000 ounces.
- Yanacocha, owned jointly by Newmont Mining and Buenaventurda and located in Peru’s Cajamarca Province. Its 2011 output was 1,293,000 ounces.
- Goldstrike/Betze Post, situated northwest of Elko, Nevada and also owned by Barrick Gold. Its 2011 output was 1,088,000 ounces.
- Argentina’s Veladero, also owned by Barrick Gold, is located in San Juan district. This gold mine had reserves of 10.6 million ounces in 2011.
- Australia’s Super Pit/Kalgoorlie is an open cut mine owned jointly by Newmont Mining and Barrick Gold. Its output in 2011 was 794,000 ounces.
- South Africa’s Vaal River mine is run by Anglogold Ashanti and produced 831,000 ounces of gold in 2011.
- West Wits/Western Deep Levels in South Africa is also owned by Anglogold Ashanti and is the deepest mining operation in the world at present. Its 2011 output was 792,000 ounces.
- Lagunas Norte in Peru is owned by Barrick Gold and produced 763,000 ounces of the precious metal in 2011.
- The other two gold mines that round off this list are Lihir Gold Mine in Papua New Guineau, owned by Newcrest Mining Ltd., and Australia’s Boddington Gold Mine, owned by Newmont Mining.
Gold rate forecasts can never be accurate to the T, but there are certain drivers that influence gold prices and help deduce the trends for 2013. The value of gold has skyrocketed consistently for 10 years, with the rate of increase being 15% toward the end of 2012 as compared to the beginning of the year.
What drives gold price trends?
Gold prices are driven by demand and supply. The demand for the yellow metal can be categorized into four sectors, namely- private investors, for technological requirements such as the dental sector, jewelry, and central banks.
More central banks started buying gold after 2010 due to the increase in gold buying patterns in developing nations. This trend is expected to continue in 2013 and even after.
Interestingly, the demand for gold jewelry has decreased in comparison to the rush to buy gold for investment purposes. Economic uncertainty, such as the current situation in the USA that reflects on its burgeoning deficit, is likely to keep the demand for gold jewelry low-key in 2013.
Gold for industrial use accounts for merely 10% of total global demand. The current high prices and the likelihood of an increase in investment demand well into 2013 may lessen its need for industrial purposes.
The investment sector is what largely drives gold price trends since it compromises over 40% of global demand. Post the financial crisis of 2007, the demand for gold as an investment option has been on a steady increase. More telling is the demand for physical, rather than paper gold, indicating that investors may opt for the former in 2013 as well.
Looking into 2013
The global economic climate, most notably, the degree of debts incurred by several private companies and Western governments, will have a telling impact on 2013 gold trends. Moreover, current political tensions between the USA and its allies and countries like Iran and Syria are likely to further cement gold’s status as a safe haven.
Gold is a precious rarity as an investment option, because it performs well during times of both inflation and deflation. In lieu of the deleveraging of many companies and economies, more and more people may diversify their investment portfolios and consider the merits of vaulted gold.
In the previous article, we’ve pointed out how to buy gold at the best price, let’s focus on the selling side for this article.
Gold prices have consistently been on the upswing, which means people can sell it at the best prices. However, not many have sufficient knowledge about the gold they own. If you want to sell your gold, you must know how much it weighs, its price when it was bought, and its carat or purity.
A few tips below can help you get the best prices for selling your gold:
- If the piece you are selling has gemstones in it, ensure that you are compensated rightly for them. Large gems like the ones found in engagement rings and other statement pieces must be valued separately from the gold, not along with it.
- Before you approach a buyer, gauge the current market price of gold. Although chances are that you won’t get the prevailing market price for the gold you want to sell, you will be able to decide whether it’s a good time to sell or not judging by the market trends and buying and selling patterns.
- Get an appraisal for your jewelry before you think of selling it. Many jewelry pieces, especially antique ones, are worth more than their ‘meltdown value’ if they are collectible items or part of elaborate sets.
- Set realistic expectations. Many people have the mistaken assumption that selling off their gold will make them rich instantly. A majority of scrap dealers only offer value that is equal to the percentage of gold in jewelry, and pure, solid gold is less common than most think it to be. The lower the carats in a gold item, the lower its value. For instance, a 14 carat anklet may have less than 60% gold, the rest of which consists of base metals.
- If you want to sell your gold at the best price, conduct a test to determine how pure the gold you own is. For this, you will need to lightly scratch the surface of the jewelry piece and see if there is any other metal underneath.
- Last but not least, explore your options. Do some comparison shopping to get an idea of the different rates being offered. As a tip, retailers and dealers in kiosks may not offer full value for your gold since they have to incur the costs for gold refining, rent, and staff salaries.
It is recommended that you carry your personal ID while selling your gold. This is because certified buyers are required by law to ask for a government-issued ID proof. If a buyer does not ask for an ID, don’t sell your gold to him/her.
Gold is a great investment option, more so now. The U.S. economy is yet to recover from the over $1.4 trillion deficit, which in turn has turned the American dollar feeble. Since the dollar is the dominating currency, many people the world over are turning to gold as a hedge against economic uncertainty. Gold can well be the only constant when stock portfolios implode.
The best time to buy gold is when current market prices have depreciated a bit. However, there are various other factors that come into play if you want to purchase gold at slightly lower rates. These are:
- Opt for gold coins or bullion that is available at a maximum premium of 8 percent: Do not pay too much for the gold you want. The average price of gold over the years has been $400 an ounce, adjusted for inflation. When there is economic turmoil, the price of gold shoots up, leading to a bubble that won’t last when the economy improves over time. When this happens, gold rates will go back to the pre-bubble range. It is recommended that you not purchase gold that is only being offered well above an 8 percent premium over the current spot price for an ounce.
- Choose certified dealers who outline purchase minimums, but also offer discounts on higher volumes of gold, and/or free or cheap handling and shipping charges.
- Many people believe high profile gold firms or companies that advertise heavily are good choices. This is not always the case. Advertising campaigns are expensive, due to which their costs are included in the rates investors have to pay for coin or bullion. These markup rates can be as high as twice the real value of the gold.
- When choosing gold coins, go for the bullion varieties rather than collectibles. Collectible coins, although sometimes profitable for selling purposes, are not recommended if you don’t have adequate knowledge about evaluating and grading them.
- Gold of a lower value may be more affordable at the outset, but it trades less often. This means you will only end up paying a higher premium for the in the long run.
Note: Ensure that you buy gold only from established dealers, banks, and other institutions that offer a reliable guarantee of purity, weight, and content. You can also try online auction sites like eBay if you have in-depth knowledge about ascertaining the purity of a gold item and separating the wheat from the chaff.