HWG, I do not agree with the idea that jewelry demand drives the gold price.
The site you linked to details the usage of new gold supply, but this ignores the usage of the gold supply that already exists above ground. Just to put it in perspective with some numbers, the gold.org site lists jewelry demand at 2279 tons in 2006. Per the website of the LBMA, where much of the world’s bullion gets sold, the volume of gold exchanges id 562 tons PER DAY — http://www.lbma.org.uk/clearing_table.htm. The 2279 tons PER YEAR cited by gold.org is absolutely swamped by this.
Also from gold.org, we see that they listed jewelry demand in 2004 at 2614 tons, vs. 2279 tons in 2006. That’s a decline of almost 13% in jewelry demand. The gold price averaged $410 in 2004 and $603 in 2006 — a price increase of 47% despite the 13% decrease in jewelry demand. Something else is clearly driving the gold price.
To cite one other particularly glaring example, I know that gold medallions were popular in the 1970s, but do you really think that’s what drove the 20-fold increase in the gold price? 🙂
Gold’s supply and demand can’t be analyzed like other commodities becuase unlike other commodities, gold commands a monetary premium. IMHO that monetary premium is the primary driver of the gold price. Also IMHO what drives the monetary premium is falling confidence in the global monetary system and especially in its reserve currency, the dollar.
As always, feel free to email with any questions because I can’t do a whole lot of back-and-forth per my last post.
