Gold has remained as the most sought after metal for various purposes with new markets emerging across the globe. With the demand for various uses, gold for jewelry and investment continues to remain dominant.
Data presented by Buy Shares indicates that a majority of the global gold demand is in jewelry and investment at 37.29% and 26% respectively. As of September 2020, the total global demand for gold stood at 5.29 million kilograms or 186.8 million ounces. Dentistry recorded the least demand at 12,587 kilograms or 0.23%.
The research also overviewed the global demand for gold by countries as of September 2020. China is leading with gold demand totaling to 700,442 kilograms while India registered the second-highest demand at 625,561 kilograms. The United States is third with its gold demand almost five times less compared to China at 148,316 kilograms. The Buy Shares research reviewed the demand for gold for 15 countries which totaled 2,042,725 kilograms (72,054,992 ounces).
Gold’s position as an investment safe haven
The demand for gold in the highlighted sectors is known to drive the price of the precious metal globally. It is clear that jewelry is the most important end-use of newly mined gold. Gold prices are affected by the basic theory of supply and demand. When the demand for consumer goods such as jewelry and electronics increases, the cost of gold can rise.
Gold as an investment is subject to cyclical volatility since many investors speculate on its value. The high demand for gold for investment can be linked to the fact that the precious metal is considered as a safe haven in the event of market volatility. This year, the market experienced the highest volatility rate due to the economic impact of the coronavirus pandemic. In general, gold can be used in portfolios to protect the purchasing power, reduce volatility, and minimize losses during moments of market shock.
For years gold has remained the dominant haven for investors due to lack of a viable alternative. The lack of viable alternatives may lead to a surge in the demand for gold among investors during uncertain economic times. Notably, in recent years, experts believe that the metal has reached its peak because gold reserves are being mined faster than they are replaced.
However, gold’s position as a safe haven is facing a threat from Bitcoin and other cryptocurrencies. Some central banks are even considering making digital assets tied to their local currencies to make payments. Proponents of the digital assets are of the opinion that cryptocurrencies are emerging as the perfect safe havens. However, for example, Bitcoin has shown not to correlate with the price of gold, but instead with the equity market.
China’s high appetite for gold
The data indicates that China has a significant demand for fro gold. The Chinese gold consumption has been high thanks to the role it plays in traditional celebrations like weddings and births. Ornamental gold sales have a bigger market around the Lunar New Year and during Golden Week in October. Additionally, the country’s central bank has been on a spending spree piling up its gold reserves.
On the other hand, the US market for gold jewelry has moved away from mass-market gold sales to designer gold jewelry brands. Notably, weddings are a major driver of American demand for gold.
The global demand for gold largely relies on the mine production where countries with higher reserves of the precious metal work harder to extract their gold when the price of gold increases. Additionally, the expectation of higher prices usually opens the door to the exploration of new reserves.
With gold increasingly becoming more challenging to access, additional challenges have begun to emerge. The need for deep excavation exposes miners to additional hazards. Furthermore, the environmental impact is heightened. These factors add to the costs of gold mine production, sometimes resulting in higher gold prices globally.