This week the gold price burst through its all-time high of $1,032 reached in March last year to hit a new record high of $1,043. The question now is can gold make new highs? To answer this we have to first understand what's been driving the gold price upwards and whether these factors are sustainable.
Supply/demand imbalance
Dan Fisher, founder of gold bullion dealer Physical Gold, points out there is a supply demand imbalance in the market which remains supportive of the yellow metal. On the supply side there was only one new major gold recovery in excess of 2m ounces in 2007 and none last year at all. This compares with more than 15 major finds a decade ago. Mr Fisher notes that the lack of new supply is exacerbated by the diminishing secondary supply due to more central banks hoarding and building up their gold reserves.
Figures from The World Gold Council seem to back this up, with aggregate net investment in gold by institutions and consumers rising from 685 tonnes in 2007 to 1,185 tonnes in 2008 and 822 tonnes in the first half of 2009 alone. So, although jewellery consumption has understandably been weaker in the face of the recession and the high gold price, and industrial and dental use have also come under pressure, the net buying by investors has more than offset this. Indeed, between 2007 and 2008 net total demand for gold rose 7 per cent to 3,804 tonnes and in the first half of 2009 it has increased by almost 15 per cent year on year. There are several reasons why this buying looks rational.
