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The gold price rose for the tenth consecutive year in 2010 reaching US$1,405.50/oz by the end of December on the London PM fix, a 29 percent increase from last year’s levels. According to the World Gold Council (WGC), which yesterday released its Gold Investment Digest for the fourth quarter and full-year 2010, last year’s price performance was driven by developments in key gold markets. China saw increased investment activity, driven in part by innovative new gold investment vehicles offering improved access to the gold market, while jewellery consumption recorded a rebound in India, the world’s largest gold market. Globally, investors remained concerned about uncertainty in the macro-economic environment and turned to gold to hedge against weakness in the US dollar and rising inflation in many economies.
Juan Carlos Artigas, Investment Research Manager, the World Gold Council commented: "A combination of global macro-economic conditions and favourable supply and demand fundamentals continued to drive gold’s strong price performance in 2010. Investors also continued to buy gold, a foundation asset that bears no default risk, in part to express an increasing sensitivity to the possibility of a tail-risk event involving sovereign debt as well as ongoing concerns over systemic risk. Gold’s relatively low volatility and lack of correlation to many assets has made it an ideal candidate for portfolio diversification and risk management strategies.
"The gold story in 2010 is about growth in demand and not just economic concerns. It is significant that consumers increased their gold jewellery spending during the first nine months of last year, despite the rising price of gold. Strong investment activity and a normalisation of gold demand in technological applications during the same period further supported gold’s stellar appreciation."
Key findings from the latest Gold Investment Digest show that: - The gold price rose by 29% in 2010. By comparison the S&P Goldman Sachs Commodities Index (S&P GSCI) rose by 20%, the S&P 500 rose by 13%, the MSCI World ex US Index increased by 6% in US dollar terms, and the Barclays US Treasuries Aggregate Index rose only by 6% over the year.
- Gold price volatility at 16% on an annualised basis in 2010 remained consistent with its long-term trend. By comparison, volatility on the S&P Goldman Sachs Commodity Index was 21% during the year, based on daily returns.
- Gold benefited from the continued contagion from European sovereign debt problems as investors’ hedge their currency risk. This was evidenced by strong gold buying in ETFs, bars, coins and other investment vehicles in Europe and other parts of the world.
- Investors bought 361 tonnes of gold in the ETFs the WGC monitors in 2010, bringing total holdings to a new high of 2,167 tonnes, worth US$98 billion. This represents the second largest yearly inflow on record, after the 617 tonnes of net inflows experienced in 2009.
- During the first nine months of 2010, global jewellery demand totalled 1,468 tonnes, increasing 18% from the same period during 2009. Gold demand for technological and industrial applications continued to recover during the first nine months of 2010, registering a 19% increase over the same period in 2009. Complete full-year data for gold demand will be available in February when the WGC publishes its Gold Demand Trends report.
- Central banks became slight net buyers of gold for the full-year, after two decades as a steady source of supply to the market. The IMF successfully completed its gold sales programme of 403.3 tonnes without disruption to the market. The Fund sold 200 tonnes to the Reserve Bank of India, 10 tonnes to Sri Lanka, 10 tonnes to Bangladesh and 2 tonnes to Mauritius, all in off-market transactions executed at market prices. The remaining sales were conducted through on-market sales within the ceiling set by the third Central Bank Gold Agreement (CBGA3).
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