Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62.96% of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
62.96% of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62.96% of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
ATFX

FCA License No: 760555

rch
Client Portal
Start trading
rch

Gold Trading - Understanding the Supply and Demand for Gold

Supply of Gold

1. Mining

The source of gold supply is gold mining. In the past years, South Africa was a big gold mining country. One of the country’s most glorious achievements was mining more than 1,000 tons of gold in a calendar year, a record high in human history at the time. However, the characteristics of natural resource mining are that the early mining cost is usually pretty low. Still, as more gold is mined, the process becomes difficult, and the mining costs tend to rise sharply.  

The same is true for gold mining. After the surface gold deposits were mined, miners were forced to drill deeper mines to access gold, increasing the difficulty of the mining process. 

gold-supply-mining

South Africa's gold mining output n has declined in recent years, while the gold production in other countries has kept improving because their gold resources were largely unexploited. According to the gold mining data, in 2021, China will become the country with the most significant gold production globally.

China's gold mining output in 2021 was 368.3 tons. Although this was not as good as the historical peak of South Africa's gold output at 1,000 tons, China ranked first globally.  China’s output was closely followed by Russia's gold production of 331.1 tons, Australia's 327.8 tons. South Africa currently ranks 11th with an annual output of 99.2 tons.

When analysing the future gold trends, we rarely care about the annual gold output because the largest amount of gold a country can produce is less than 400 tons of gold. Therefore, the growth or decline of gold production has a minimal impact on gold prices globally and gold prices.

 

2. Central Bank Gold Reserves

The central bank has the right to issue paper money. However, to ensure that the paper money issued has a reasonable value, the central bank must buy enough gold to balance it.

After the gold standard withdrew from the stage of history, gold as the central bank's reserve assets became less necessary. Especially after establishing the Bretton Woods system, the status of the U.S. dollar has dramatically improved, even surpassing gold.

For central banks other than the United States, the total amount of dollars in reserves is often higher than gold. However, the U.S. dollar is also a paper currency, and there is also a depreciation caused by oversupply. Therefore, although the status of gold has declined, central banks must retain a certain amount of total reserves.

 

Demand of Gold

1. Jewelry

Since ancient civilisations, wearing gold jewellery and accessories has been a trend, especially for consumers in China and India. When holding weddings and attending important occasions, people tend to receive gifts and give gifts, with gold products being the first choice. According to the data collected in 2020, the total demand for gold jewellery was 1401.1tons, which is the second-highest gold demand industry in the world.

gold-demand-jewelry

2. Investment

Gold investment is the sector with the highest gold demand.  According to the data analysed in 2020, the total amount of gold used for investment purposes was 1773.3 tons, providing the highest source of gold demand globally. 

Comparing the above figures with the 1274.6 tons of gold used for investment in 2019, we can see that the demand for gold among investors is rising and has surpassed the demand for gold in the jewellery industry. 

 

Conclusion

Studying the supply and demand of gold is an essential skill for most gold traders. In addition, investors should pay attention to the global investment market, as investors and institutions stockpile gold due to its safe-haven properties. Demand for gold also tends to rise and fall depending on the monetary policies implemented by the US Federal Reserve board. 

 

Download Metatrader 4 or set up a demo trading account to start gold trading now!

Last Updated: 02/12/2021

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

Recent Posts

Trading Strategies for Beginners
3 Factors That Affect the US Dollar Rate – Trading Strategies for Beginners

What factors affect the value of the U.S. dollar? When investors decide to buy or sell U.S...

Trading Strategies for Beginners
Forex Trading vs Precious Metals Trading: What Are the Differences?

Forex trading and precious metals are two trading categories that are popular in the finan...

Trading Strategies for Beginners
3 Crude Oil Trading Tips & 5 Factors That Affect Crude Oil Prices - Trading Strategies for Beginners

There are many different techniques for investing in spot crude oil due to differences in ...

Trading Strategies for Beginners
What is Bitcoin? 4 Easy Beginner Tips & Steps to trade Bitcoin

Bitcoin is the leading digital currency, which means that all operations and transactions ...

Trading Strategies for Beginners
Complete Forex Trading Guide - Trading strategies for beginner

Forex trading is the exciting world of trying to profit from the price changes between the...