The largest demand for gold is in jewelry and investments. Gold is known as ametal that is easily used and has many industrial applications. Since gold is so durable andluxurious, many people invest in jewelry, stocks, and gold bonds. Considering the fact thatgold is considered a world-wide valuable good, many economies have gold reserves tohelp protect themselves in times of need. Nevertheless, factors of supply and demand havecontributed to the decrease of the price of gold, which has reached an all time low since1978. This reduction has raised many concerns in the United States having them weigh thedifferent factors of the price, supply and demand, and consumption that may be affectingthe price change.
The price change commands attention since gold serves to indicate price stabilityor inflation. Although, inflation is not as threatening in the United States because it ismore industrialized, the bigger fear is facing deflation with our countries gold currency.
Gold averaged 294 dollars per ounce in 1998, when at one time the prices were in the mid$400-500 per ounce. Due to fact that gold prices have been so low, Central Banks havethreatened to sell their gold inventories fearing that gold is no longer considered theultimate store of value. Regardless, prices have continued to fluctuate in both directionsthroughout the year, but it is important to weigh the different variables that are having aneffect on the price.
There are different factors associated with the supply and demand which havecaused prices to decrease. First of all, the record low prices in the past year has causedinvestors to participate less causing prices to be determined largely on gold’s own supplyand demand fundamentals and the economic environment. The supply of gold declined byless than 2% during 1998. The price reduction started to impact the mine production byslowing the rate of manufacture growth by the end of 1998. When prices began toweaken, this caused many mines to shut down, leaving low grade ore in the ground. Thisalone is effecting the mine output and the cost to produce more gold.
On the other hand, the sales of gold jewelry are increasing at a record pace, sincethe economy is strong, there are low gold prices, rising consumption rates, the emergenceof new discount chains, television shopping, and electronic chains (Haubrich, Joseph). Thegrowing demand for gold jewelry helped push gold usage in the United Sates to a firsttime report of 428.4 metric tons in 1998, which is an 18% increase. Since consumptionhas been driven in the United States, our economy is expanding and consumers are spending more. During the past year, according to the JCK national poll, over 150independent jewelers support the figures. They found that two-thirds of respondents(68%) said they had a sales increase over the past year, while the other two out of five(38%) claimed to have sales gains of 20% or more. Over all, the immediate gain forjewelry retail due to the lower prices was a 15 % increase. Using the statistics from the Commodity Price Index, for the last 12 months in1998, it is evident that the second half of the years prices fluctuated. In the first part of1998, the gold price ranged from $295.90 – 297.49, although it peaked in April reachingto $308.40, which was the highest for the year. The price increase was due to higherdemand of consumers and the expansion in investments during that time period, in spite ofthe fact, prices did not continue to remain as high for the remainder of the year. In fact,the following month of May, dropped another $9.01, having the rate of gold at $299.39.
As for the second half of the year, prices still dropped but managed to stay in the low$290’s making retailers prosperous. Regardless consumers were happy with the lower prices, many investors andminers have been struggling to feel the same towards the lower rate. Stocks have lost over90% percent of their investments in gold and have many investors wondering if the valueof gold is depreciating. Miners too, are worried about the lower prices considering theyhave been the major producers of gold in the past and in future markets. The idea thatcentral banks have discussed to sell partial amounts of their gold reserves has investorsworried with hopes that demand will not continue to decrease.