Notwithstanding fluctuating prices and a volatile year for gold in 2011,the demand for the precious metal has remained stronger than ever,with India,China and Europe being pre-eminent markets. According to the World Gold Council's (WGC's) annual report,the gold demand totalled 4,067.1 tonnes,a slight increase from the previous year. Record low interest rates,inflation expectations and investment demand continued to drive the gold bull market. The main driver for the increase was the investment sector where annual demand was 1,640.7 mt,up 5 per cent on the previous record set in 2010,and with a value of USD 82.9 billion. The pre-eminent markets for investment demand in 2011 were India,China and Europe. "Overall it was an impressive year," WGC's Managing Director of Investment,Marcus Grubb,said. "It's largely an investment,Central Bank (buying) and China/India story," he said. The annual value for gold demand in 2011 equalled USD 205.5 billion,an all-time high and a 29 per cent gain above the 2010 value. Jewellery accounted for USD 99 billion in gold demand,while investment demand was close behind with nearly USD 83 billion. Interestingly,the majority of investment demand value was due to physical bar and coin demand,which represented USD 75 billion. As more investors remain sceptical and lose confidence in the global financial system,they turn to physical gold for protection. The annual WGC report explains,"The bar and coin story is one which has traversed borders led by China,India and Europe,but other markets have also participated in terms of relative growth rates. "Store of wealth demand,diversification,negative real deposit rates,the threat of inflation in developing markets,deflation in developed markets and currency debasement have all contributed to driving up demand over the last few years." In 2011,the price of gold averaged USD 1,571 per ounce,which was more than 28 per cent higher than its 2010 equivalent. While this contributed to the record annual value for gold demand,it also proved an argument against gold to be incorrect. Many gold critics claim that as gold prices increase,the supply of gold will also increase from people selling any form of gold they might hold. However,this is simply not true. Despite a nominal record high of USD 1,900 per ounce,recycled gold declined by 2 per cent. In fact,recycled gold supply has been declining since 2009,when it hit a peak of 1,694.7 tonnes. The WGC explains,"Despite the rise in prices,recycling activity was constrained by a combination of expectations for higher prices,acclimatisation to a higher current price level,economic growth and exhaustion of near-market supply." Record high gold prices also failed to significantly curtail the appetite for industrial demand. The technology sector demanded 463.5 tonnes of gold in 2011,down from 466.4 tonnes in 2010,but still above the 456.3 tonne average of the preceding five year period. Within the sector,electronic demand increased from 326.9 tonnes in 2010 to 330 tonnes in 2011. The dental segment is the one area that appears to be affected by rising gold prices. Dentistry gold demand fell 10 per cent year-over-year to 43.8 tonnes. The WGC says,"This result was driven by the elevated gold price and weak economic conditions which continued to encourage substitution both in favour of palladium and non-precious options,mainly cobalt-chrome and ceramic materials." However,dentistry represents a small portion of global gold demand,and will not have a material impact on prices.
