Au Demand Still Matters - FYI https://www.resourceinvestor.com/News/2011/9/Pages/Gold-The-Facts-Still-Matter.aspx Gold: The Facts Still Matter Amine BouchentoufPublished 9/29/2011 Print This ArticleNormal TextLarge TextEmail ShareFact #1: Four Swimming Pools of Gold in the WorldPeople are always throwing around the fact that gold is "rare". While that's absolutely true, most people don't have a clue as to what that really means.Let's look at the facts: the amount of gold ever mined in the world is 172,000 tons (as of 2011). Let me put that in perspective: If you were to combine all of the gold ever mined in the world, it would barely fill up four Olympic-size swimming pools. (Assuming an Olympic-size pool contains 2.5M liters, liquid gold would fill up 3.7 pools.)What's even more important to understand is that the gold supply is growing at less than 2% per year. Each year, the amount of "new" gold coming out of the ground is less than 3,000 tons (2,450 tons in 2010). That's because bringing new mines online is a lengthy process (three to five years), and that's not considering exploration time. Fact #2: People Love Gold A common argument thrown around by gold bears is that gold has no utility. First, that's not true: gold is one of the best conductors of heat and electricity and over 12% of gold is used by the industrial sector. Second, there's just something about this shiny yellow metal that makes people's heads spin. That's why over 51% of gold is used for jewelry, and that demand is growing. Indian wedding season is about to kick off and that's a major event for the gold markets. India alone imports about 1,000 tons of gold each year (25% of global demand), and a bulk of that is for jewelry.Gold isn't only used in jewelry but also as a store of value. Bank account penetration in India is 30%, so that only three out of 10 people in India have bank accounts. What do the other 70% do with their money? Most of the time, they buy gold (or silver). Fact #3: Despite What they Say Central Banks Love Gold TooCentral banks are some of the largest holders of gold in the world, currently holding over 20% of global supply and growing. Central banks view gold as a monetary asset and have a policy in place to acquire this asset through physical purchase programs. Currently, the largest holders of gold bullion are the United States, the eurozone, Germany and the IMF.These holders have the overwhelming majority of their foreign exchange reserves in gold. The Federal Reserve has 75% of its forex reserves in gold; 72% of the German central bank's foreign reserves are held in gold bullion: Rank Country/Organization Gold(t) Share of national forex reserves- Eurozone 10,792.6 60.7%1 USA 8,133.5 74.7%2 Germany 3,401.0 71.7%3 IMF 2,846.7 -4 Italy 2,451.8 71.4% 5 France 2,435.4 66.1% 6 China 1,054.1 1.7% 7 Switzerland 1,040.1 16.4% 8 Qatar 950.3 7.1% 9 Russia 775.2 6.7% 10 Japan 765.2 3.0% Source: The World Gold Council. Data as of December 2010More importantly, is that central bank purchases of bullion are now on overdrive, up over 168% YTD. One of the key market drivers going forward will be central bank bullion purchases, which will put a floor on gold prices. For those who doubt that central banks have the ability to increase their gold holdings, here's one thing you need to keep in mind: while the central banks of Europe and America hold over 70% of their reserves in gold, emerging market central banks hold less than 5% in bullion--China holds less than 2% of its reserves in gold vs the USA's 75%. Country Gold Reserves as % of totalBrazil 0.5%China 1.6%Russia 8.2%India 8.5%Japan 3% What do you think will happen to the price of gold if the BRIC central banks were to increase their percentage of gold holdings to the level of the North Atlantic central banks? And that trend has already started. Source: World Gold Council What's Next- Gold has been one of the best-performing assets this year, and over the last five years. It's up 15% while the S&P is down 7% YTD. Last week we came close to a technical breakdown, as gold got caught up in the global asset deflationary move but has recovered from last week's lows.- I expect increased volatility this quarter but the upward trend remains intact. Gold's trading range should be between $1,500 and $1,800. If central banks keep up their bullion purchases and investors start piling into ETFs and other vehicles as a safety against volatile markets, we could see gold back at the $1,900 level and even flirt with $2,000. However, this may be several weeks away depending on how long this consolidation phase lasts. - I'm skeptical that the Europeans will get their act together so I expect a further weakening of the EUR. Therefore, initiate long bullion in EUR as opposed to USD.- Gold equities have unfortunately lagged bullion on the upside but lead bullion on the way down. That said, another selloff in the equity markets (even if it's contained) will most likely affect the gold miners GDX and GDXJ. That will present a unique buying opportunity as many of these miners are currently trading at a large discount to intrinsic value and to physical spot prices.- ABX and NEM are my favorite names in the seniors, while NGD and AUQ should provide substantial upside in the intermediate space. Amine Bouchentouf is the author of the best-selling book "Commodities For Dummies", published by Wiley. He is a partner at Parador Capital LLC an investment firm focused on commodities and emerging markets. He is also a founder and partner of Commodities Investors LLC, an advisory firm dedicated to providing insightful information and analysis on all things commodities