The GFMS Gold Survey is recognized as the authoritative source of information on the fundamental developments in the gold market. As we celebrate the Gold Survey’s 50th anniversary, here’s a high-level look at what’s been happening in the gold market for the past half century. While the size of the market and the distribution of regional supply and demand patterns have evolved over the past 50 years, there are a few elements that remain the same.
Gold market size
One of the obvious changes in the market is its overall size. In 1971, mine production was just 1,518 tonnes; in 2016 it had reached 3,169 tonnes, a growth rate of 1.5 percent per annum (pa) – although it peaked in 2015 at 3,217 tonnes and we are expecting further erosion in the sector.
The demand side of the market is obviously more variable than mine production, but grew at an average rate of 2.0% pa from 1,367 tonnes to 3,349 tonnes. The average growth rate in approximate annual dollar value terms was 9.5 percent and 9.9 percent pa, respectively, from $2.2 billion and $1.9 billion in 1971 to $127 billion and $135 billion in 2016.
Gold mine production
In 1968, South African production was 969 tonnes and accounted for 77 percent of the free world’s mine production – growing to a peak of 1,000 tonnes by 1970 (note this does not include the USSR, for whom gold production numbers were not yet available). At that stage, the majority of South African gold was shipped to Europe (apart of course from local fabrication although that was – and remains – relatively low). Interesting fact: gold was flown to London and Zurich, and the airliner used to have its own designated landing areas at Heathrow where the gold moved directly from aircraft to secured vaulting. (It may still do – that is shrouded in secrecy!)
Snapshot of gold mining market share
Today, China is the dominant mine producer with 454 tonnes in 2016, or 14 percent of total, followed by Australia with 291 tonnes and Russia with 254 tonnes.
There have also been some shifts in terms of gold consumption. In 1970, the largest fabricators of gold, worldwide, were India, the United States and Italy at 215 tonnes, 193 tonnes and 175 tonnes, respectively (although much of the fabrication in the latter was destined for export). Jewellery represented the largest area of gold fabrication at 75 percent of total or 959 tonnes; in 2016 Jewellery commanded 53 percent of total fabrication at 1,891 tonnes. Electronics has retained second slot over the period, rising from 121 tonnes to 354 tonnes.
Today, China is regularly in competition with India as the world’s largest consumer of jewellery. When industrial demand is taken into account, China is consistently the top consumer.
Turkey has been the largest consumer in the Near East for at least 50 years and in the early 1970s was generally serviced by Beirut, with some material coming also from Europe. Now its major sources are more varied. Large gold bars are usually sourced from Switzerland and the UK, although now that the government has allowed domestic banks to hold kilo bars in their reserves as well as London Good Delivery (LGD) bars, these imports may dwindle slightly as there is good local liquidity in kilo bars. There is also an interesting local set of flows with the refining of German grain into bars and resale in to Germany. Dubai is a significant source for jewellery.
Investment in gold
Based on an approximation using annual demand numbers and prices, total investment in investment bars and official coins amounted to $58 billion from 1968 to 2016 inclusive. Obviously, this is only a very loose estimate because of fluctuations in price and volume, but it does give an order of magnitude. The tonnage, at almost 24,000t, is just over 7.5 times the world mine production in 2016.
Demand for physical gold investment
Bars, Coins and EFTS
Some interesting historical points to note:
- Heavy investment in 1968 was driven almost exclusively by France, in a period of extreme political tension in the country.
- The gold price spikes driven by the first and second oil shocks (1972-74, 1978-80) had an obvious effect on purchasing patterns and there were also substantial quantities of resale.
- Strong bar demand in 1988 and 1989 was driven particularly by Taiwan and Japan, partly with an eye on political developments in China (Tiananmen Square was 1989), but also by changes in Japanese government policy that allowed marine and fire insurance companies to invest up to 3% of their portfolios in gold.
- The demand surge in the wake of the financial crisis is self-explanatory, but the interesting pattern of 2013 and 2014 reflects sales from ETFs (which came into being in 2003) as western investors viewed the financial crisis as being in retreat, and the massive uptake of that metal in the Far East, especially China.
- In 2013, 888t of gold left ETFs, flowed through Swiss refineries for re-melting from London Good Delivery bars into 4 9’s (i.e., 99.99 percent purity) small investment bars, and made their way eastward as Chinese investment ballooned. There has been some reversal since, but of no great volume.
Gold fabrication and fabrication patterns
Back in the early years, Europe was the dominant regional fabricator of jewellery, with Italy the world’s largest (although India was not far behind), at 145 tonnes or 16 percent of the world total.
Global jewellery fabrication by country/region
For many years, Italy was host to the world’s largest jewellery fabricators, with sales split broadly evenly between North America, Europe and the Middle East. In 1980, with so many people selling jewellery back into the market in the wake of gold’s rocket to $850/ounce, Italy actually commanded 70 percent of the world’s fabrication! Its average market share over the 1970s and 1980s was 25 percent. Then the Indian market expanded rapidly in the 1980s following liberalisation. The accompanying growth in the Far East has meant that Italy, while still a force to be reckoned with, has had its share squeezed to below 10 percent of total.
In terms of fabrication patterns, gross jewellery demand has averaged 78 percent of total “industrial” use from 1968 to 2016 inclusive, with some notable outliers in tonnage demand. For example, the hefty contraction in 2009 saw jewellery demand down by 20 percent with the biggest retreats coming in Europe and India, reflecting straitened economic conditions and the rise in the gold price, respectively. In 2016, weak markets overall have meant that jewellery was down by 22 percent year-on-year, although the size of the sector means that it was still 75 percent of total.
Gold fabrication by sector
The electronics sector currently has 10 percent market share, boosted by intermittent pressures on jewellery over the past decade. The real loser over the past 50 years is dentistry, where prices and technological advances have taken gold demand from 6 percent in 1968 to below 2 percent in the past seven years, with a tonnage drop of 58 percent.
Dig further into gold
For lots more information, anecdotes and statistics on the gold market, past and present, download a complimentary copy of the 50th Anniversary GFMS Gold Survey.