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In recent years, many investors opted for gold to provide protection against inflation and as a result of the weakened dollar, which has driven prices upwards. Strong development on many growth markets has also resulted in an increase in demand for physical gold.A significant percentage of the European central banks’ currency reserves is held in the form of gold, and since the 1990s they have been responsible for an important share of the supply on the gold market. A clear trend now being witnessed is that the European central banks are reducing their gold sales. The central banks in the major economies outside of Europe and the USA, their currency reserves in the form of gold. The trend is that these countries – such as China, India and Russia – are now increasing their gold reserves.
- More currency than metal
The price of gold is affected by developments on the global financial markets; gold is viewed as a safe asset with an increased value in times of economic or political uncertainty. As gold is considered to have a stable value, the metal is often viewed as a form of protection against inflation. As the central banks are responsible for a significant portion of the supply of gold, and as the metal is used as a financial investment by private individuals and institutions, gold has a price structure that differs from both base metals and other precious metals. The gold price is affected by the economic situation, and its pricing means that gold is more like a currency than a metal.
- ETFs – gold as a financial instrument
Investments in gold have previously been complicated, as they have often required the purchase of physical gold. In 2002, a new financial instrument was introduced that made it significantly easier to invest in gold. These ETFs – Exchange Traded Funds – are listed funds whose only holding comprises physical gold. During 2010, investors purchased 361 tonnes of gold via ETFs, which meant that the total holding reached a new record level of 2,167 tonnes at a total value of around USD 98 billion. In parallel, demand for gold futures and OTC products in gold have grown.
- Mining production
In total, around 160,000 tonnes of gold has been produced so far – 66 per cent of which since 1950. The yearly global production amounts to about 1.5 per cent of the total amount that has been produced so far. More than 50 per cent of all that is produced is turned into jewellery. A substantial amount becomes gold bars, which are held as investments or owned by central banks. The increase in the price of gold during the 2000s has led to increased exploration – but as it takes a long time to move from exploration to a gold-producing mine, only a few new gold mines have commenced production in recent years. Since the late 1900’s, South Africa has been a dominating global gold producer – about 50 per cent of all gold produced so far in the world originates from South Africa. In 2007, the country lost its number 1 position on the world ranking of gold producers for the first time as China took over this position. Other big producers are the US, Australia, Russia and Peru.The gold mining sector is relatively fragmented – the ten largest producers are responsible for around 40 per cent of total production. The five largest gold mining companies are Barrick, Newmont, Mining, AngloGold Ashanti, Gold Fields and Goldcorp. In 2009, Barrick produced 7.4 million ounces of gold. In the Nordic region, Nordic Mines will be one of the largest gold mining companies, with an anticipated production of 118,000 ounces.