Case Study in Demand and Supply

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Another 12% of demand is attributed to medical and industrial uses for gold, where it is used in the manufacturing of medical devices like stents and precision electronics like GPS units.

Trend:

Demand for gold was 4218 tonees in 2015. For the second quarter in 2016, the demand was 1050 tonees i.e. annual demand was at the level of 4200 tonnes.

The world's gold production is lower than the demand. The above-ground stock of gold is around 160,000 metric tons and grows about 2,400 tons a year, which is only 1.75%, while demand keeps expanding. One of the biggest buyers is China. Over the past five years, the country secretly increased its gold holdings from 600 tons to 1,054 tons.

July/August 2011

In July/August 2011. What we found was that Gold not only rallied, but it rose significantly and contemporaneously as the stock market crashed. The investors looked at Gold as a safe investment.

2013

In 2013, many investors tried to anticipate when the U.S. Federal Reserve might cut its monthly bond purchases, which would remove a long-running support from the gold market. Many investors purchased gold as a hedge against a weaker U.S. dollar and inflation, two risks associated with the accommodative monetary policies.

In 2013, stock market revived in US.

July, 2015

In July 2015, China dumped a huge amount of gold on the market.

Current

Many investors believe that, as rising interest rates make bonds and other fixed income investments more attractive, money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all. Recently FED Reserve increase the intrest rate from 0.25% to 0.50%.

Required:

a) Critically analyze the above and ascertain how the factors impacted on gold price in various periods discussed above. Your answer should include graphs.

b) What do you expect the gold price in mid-2017? Give reasons for your answer.