"Distressed de-stocking from consumers in these regions has likely peaked, whilst Fitch expects Asian, Middle Eastern, and Latin American gold consumers to remain price sensitive - selling scrap when prices appear high in local currency and buying jewelry, coins or bars when prices are below expectations," Bonar added.
The price of gold is heavily influenced by investor demand on one side and scrap and official gold sales on the other. On the supply side, the worldwide supply of gold comes from mine production and the drawdown of existing stocks of bullion and fabricated gold held by governments, financial institutions, industrial organizations, and private individuals.
In recent years, mine production has accounted for 60% to 75% of the total annual supply of gold and remains at a fairly constant level. Official sector gold sales have accounted for approximately a further 10% of gold supply over the past three years. Transparency on official sector gold sales and stability comes from the Central Bank Gold Sales Agreement (CBGA) first entered into by many European nations' central banks in September 1999, and recently renewed for a further five years.
On the demand side, gold is primarily used in product fabrication and as an investment. Historically, jewelry accounts for approximately 65% to 75% of the worldwide demand for gold, but fabricated gold is also used in electronics, dentistry, industrial and decorative uses, medals, medallions, and official coins. Gold investors buy gold exchange traded funds (ETF), gold bullion, equity in gold producers, official coins and high-karat jewelry. In the past three quarters jewelry demand was only 48% of total overall demand.
While pricing in the gold market has declined from a high of approximately $1,000 per troy ounce (oz.) in March 2008, gold remains near its highs on a historical basis: it is currently at approximately $941/oz. compared with the 10-year historical average of $494/oz.