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Thursday, September 24, 2009

The Myth of the Declining Gold Price

There seems to be a myth about the demand for gold declining in the media, but in fact, nothing could be further from the truth.

The demand for gold is as high, if not higher, than ever before as witnessed by the high levels of gold price found around the world.

This myth is the result of a reporting flaw where much of the data is omitted and only one aspect of the gold part is being reported. Gold for the jewelery market has fallen recently due to the recession. For example, Saudi Arabia's jewelers have witnessed a major fall of around 30 percent in the first six months of the year. The reason provided for the fall is economic slowdown and high gold prices. However, what is not being reported is bank gold sales activity has dropped and bank buying of gold has increased putting the banks in a position of demand despite misleading media headlines.

In short, there may be a drop in gold demand for jewelery in a recession but the demand for gold as an investment increases dramatically. A recent gold ETF reported its biggest ever one day inflow of gold since its inception. This followed healthy inflows over the week prior and up eighteen percent.

The following graph gives a clear insight into the actual demand for gold.

Using one aspect of a market to make an assessment of an entire market is faulty report and rather like saying the entire meat market is slow because one butcher did not buy as much meat as usual.

The market for gold investment, and gold in industry for that matter, is still high. Gold bullion investment traditionally increases in a recessionary market and ... well try buying gold bullion from a bank in Europe or even from any gold bullion dealer and find out what the waiting time is. Currently 4 to 8 weeks as mints struggle to keep up with the demand.

in addition the myth of the declining gold price has recently been exploded by the rise of gold on a stable and steady trend to now over one thousands US dollars per ounce.