Colas points out 10 other factors that have helped support gold prices:
- Emerging market demand. In the third quarter, India’s consumer demand was 223.1 tons and Greater China, including China, Hong Kong and Taiwan, hit 185.1 tons. The current 38 ton gap has narrowed 71% since the third quarter of 1997. “Gold is, at least partially, an emerging market play,” Colas said.
- China. “Gold is one of those rare products that China actually imports,” Colas added.
- Central banks. The U.S. sits on 8,333 tons of gold, India 557.7 tons, Netherlands 612.5 tons, Japan 765.2 tons, China 1,054.1 tons and France 2,435.4 tons, to name a few.
- Investment demand. Jewelry made up 78.5% of total demand in 2002. In the third quarter of 2012, jewelry demand was 59.9% while investments accounted for the other 40.1%. According to the World Gold Council, 91% of European gold demand was in physical investment vehicles over the third quarter as a safe hedge against the euro currency.
- Exchange traded funds. ETFs are the fastest growing market for gold demand, increasing 58% over the year ended in the third quarter 2012. [Why Gold ETF Holdings are a Leading Indicator]
- Supply. While 171,300 tons of gold has been extracted since mining began, the U.S. geological society estimates that about 51,000 tons still sit underground and the World Gold Council expects about 730 tons mined each year.
- Inflation. Gold has appreciated from $18.92 in 1911 to over $1,700 in 2012. “With that kind of track record, gold remains a valuable hedge against government-sponsored inflation,” Colas said.
- Diversification. Gold is that rare investment product which is historically uncorrelated to financial assets.
- Recyclable. Around 40% of total supply is recycled gold in 2012. “Every piece of gold jewelry, every coi, every ingot ever produced still has value,” Colas added.
- Gold standard? “Any chatter about a new ‘Gold standard’ is likely premature,” Colas said. Total global gold at today’s price is valued at around $10 trillion, whereas the U.S. government is sitting on $16.5 trillion in debt.
“All in all the case for gold in 2013 looks pretty bullish, whether you’re buying for high returns or in preparation for Armageddon. A historical upward trend and increasing demand for the precious metal makes a good case for buying, though I wouldn’t be worried about resource scarcity and the replacement of national currency just yet,” the strategist concluded.
For more information on gold, visit our gold category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own GLD.