Page 2 of 2 A (Slight) Recovery In Traditional Demand Instead, we began to see some slight indications of recovery in jewelry demand. Although the rebound remained slow, some areas such as China showed year-on-year growth; the country saw a 6 percent increase in gold tonnage demand, which translates to a 19 percent increase by value. But we shouldn't get carried away: Most markets didn't fare nearly as well, with gold jewelry demand in tonnes dropping 20 percent for the year and 10 percent in value. In fact, electronics was the only sector that saw year-over-year gains in demand in Q4 2009. The World Gold Council cites the economic downturn as a good thing in this case, as it led to a decline in overall electronics inventories. That, in turn, resulted in a modest uptick in semiconductor sales for 2009, which raised immediate demand for gold 25 percent over Q4 2008. Still, applications where gold remains optional, like dentistry, continued to suffer, given the high prices. Dentistry demand fell 5 percent year-over-year; other industrial applications were down 13 percent. Cash For Gold's Effect On Supply According to the World Gold Council, total gold supply was up 11 percent year-over-year in 2009, primarily due to a spike in recycled gold entering the market in the first quarter: 
"Over the year as a whole, the supply of recycled gold exceeded historical norms," the World Gold Council said in its report. That is, the flood of cash-for-gold exchanges put 2009's supply near all-time highs, despite the fact that central banks once again were net buyers of gold. Gold supply is expected to continue to rise this year, with major producing nations like Australia talking about 10-11 percent increases in production in 2010; ABARE recently estimated its production would jump around 10 percent. The End Effect On Gold So what about prices? That's where the balance comes in. 
At this point, there's little question that ample gold supply exists to meet current demand, but most of the flexibility will come from scrap, which is hugely price sensitive. In its announcement, ABARE argued gold would average $1080/oz for 2010—before crashing down to $900 again on oversupply. That's a far cry from HSBC's suggestion that gold could go as high as $5,000/oz in five years. Me? I tend to follow supply and demand, and right now, the market's coming off four straight quarters of oversupply. Given that, it's actually quite impressive the metal managed to rally $200 since last March. But I'm not inclined to think $5,000/oz—or even a more modest $1,500/oz—is anywhere in the cards until we see real demand start outstripping real supply. If you liked this article, then check out:
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It seems to me that the supply of currencies that gold is priced in is growing faster than the supply of gold.
The real question is how many straight quarters has the dollar, pound, euro, etc. been in oversupply?