Downloadpdf Relevance of Gold 2021 - appendix

A large yet scarce market

The gold market has two attractive features for investors. Gold’s scarcity supports its long-term appeal. But gold’s market size is large enough to make it relevant for a wide variety of institutional investors – including central banks. 

There are approximately 201,296t of gold above ground, worth more than US$12.2tn (Chart 16).1

Mine production has added approximately 3,300t per year over the past decade, equivalent to an annual 1.8% increment of above-ground stocks.2 Mine production is also well diversified across regions (Chart 17).

The approximate breakdown of above-ground stocks of physical gold,3 based on its use, is:

  • Jewellery: 93,253t (USD 5.7tn) 46%
  • Official sector: 34,211t (USD 2.1tn) 17%
  • Bars and Coins: 40,621t (USD 2.5tn) 20%
  • ETFs and similar: 3,764t (USD 0.2tn) 2%
  • Other and unaccounted: 29,448t (USD 1.8tn) 15%

The financial gold market is made up of bars, coins, gold-backed ETFs and central bank reserves. This segment of the gold market compares favourably to the size of major financial markets (Chart 16).

 

Chart 17: Fewer supply shocks reduce gold’s volatility

Fewer supply shocks reduce gold’s volatility

Gold supply is a mix of mined (72%) and recycled gold (28%); mine production is spread across continents, contributing to gold’s low volatility relative to commodities

Fewer supply shocks reduce gold’s volatility
Gold supply is a mix of mined (72%) and recycled gold (28%); mine production is spread across continents, contributing to gold’s low volatility relative to commodities
*Computed using average annual supply from 2010 to 2019. Regional breakdown excludes central bank demand due to data availability. On Goldhub.com see: Gold mine production Sources: Metals Focus, World Gold Council

Sources: Metals Focus, World Gold Council; Disclaimer

*Computed using average annual supply from 2010 to 2019. Regional breakdown excludes central bank demand due to data availability. 

On Goldhub.com see: Gold mine production

 

Chart 16: The size of the financial gold market is large compared to many global assets, and dwarfs known open interest in gold derivatives*

 

 

(a) Value of above-ground gold and gold derivatives

The size of the financial gold market is large compared to many global assets, and dwarfs known open interest in gold derivatives*

The size of the financial gold market is large compared to many global assets, and dwarfs known open interest in gold derivatives*
(a) Value of above-ground gold and gold derivatives
*As of 31 December 2020. **Represents open interest in COMEX, TOCOM and OTC transactions. ***Based on 2020 above ground estimates and the standard Olympic swimming pool dimensions of (length = 164ft, width = 82ft, depth = 9ft). 1Includes “other fabrication” (13%) and “unaccounted for” (2%). On Goldhub.com see: Financial market size. Sources: Bloomberg, Bank for International Settlements, ETF company filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, US Geological Survey, World Gold Council

Sources: Bloomberg, Bank for International Settlements, ETF company filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, US Geological Survey, World Gold Council; Disclaimer

*As of 31 December 2020.
**Represents open interest in COMEX, TOCOM and OTC transactions.
***Based on 2020 above ground estimates and the standard Olympic swimming pool dimensions of (length = 164ft, width = 82ft, depth = 9ft). 1Includes “other fabrication” (13%) and “unaccounted for” (2%).
On Goldhub.com see: Financial market size.          

 

 

(b) Total gold supply can fit in just under three Olympic pools***

The size of the financial gold market is large compared to many global assets, and dwarfs known open interest in gold derivatives*

The size of the financial gold market is large compared to many global assets, and dwarfs known open interest in gold derivatives*
(b) Total gold supply can fit in just under three Olympic pools***
*As of 31 December 2020. **Represents open interest in COMEX, TOCOM and OTC transactions. ***Based on 2020 above ground estimates and the standard Olympic swimming pool dimensions of (length = 164ft, width = 82ft, depth = 9ft). 1Includes “other fabrication” (13%) and “unaccounted for” (2%). On Goldhub.com see: Financial market size. Sources: Bloomberg, Bank for International Settlements, ETF company filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, US Geological Survey, World Gold Council

Sources: Bloomberg, Bank for International Settlements, ETF company filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, US Geological Society, World Gold Council; Disclaimer

*As of 31 December 2020.
**Represents open interest in COMEX, TOCOM and OTC transactions.
***Based on 2020 above ground estimates and the standard Olympic swimming pool dimensions of (length = 164ft, width = 82ft, depth = 9ft). 1Includes “other fabrication” (13%) and “unaccounted for” (2%).
On Goldhub.com see: Financial market size.
 

Sources: Bloomberg, Bank for International Settlements, ETF company filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, US Geological Survey, World Gold Council; Disclaimer

*As of 31 December 2020.
**Represents open interest in COMEX, TOCOM and OTC transactions.
***Based on 2020 above ground estimates and the standard Olympic swimming pool dimensions of (length = 164ft, width = 82ft, depth = 9ft). 1Includes “other fabrication” (13%) and “unaccounted for” (2%).
On Goldhub.com see: Financial market size.

 

Demand diversity underpins gold’s low correlations

Chart 18(a): Gold is bought around the world for multiple purposes – as a luxury good, a component in high-end electronics, a safe-haven investment, or a portfolio diversifier*

 

Gold is bought around the world for multiple purposes – as a luxury good, a component in high-end electronics, a safe-haven investment, or a portfolio diversifier*

Gold is bought around the world for multiple purposes – as a luxury good, a component in high-end electronics, a safe-haven investment, or a portfolio diversifier*
*Computed using 10-year average annual demand from 2011 to 2020. Regional breakdown excludes central bank demand due to data availability. Includes: jewellery and technology net of recycling, in addition to bars and coins, ETFs and central bank demand which are historically reported on a net basis. It excludes OTC demand. Figures may not add up to 100% due to rounding. **Net jewellery and technology demand computed assuming 90% of annual recycling comes from jewellery and 10% from technology. Source: Bloomberg, Company Filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, World Gold Council

Chart 18(b): Gold demand is geographically diverse, but 72% comes from emerging markets, with China and India representing 50% of all demand.*

 

Gold demand is geographically diverse, but 72% comes from emerging markets, with China and India representing 50% of all demand.*

Gold demand is geographically diverse, but 72% comes from emerging markets, with China and India representing 50% of all demand.*
*Computed using 10-year average annual demand from 2011 to 2020. Regional breakdown excludes central bank demand due to data availability. Includes: jewellery and technology net of recycling, in addition to bars and coins, ETFs and central bank demand which are historically reported on a net basis. It excludes OTC demand. Figures may not add up to 100% due to rounding. **Net jewellery and technology demand computed assuming 90% of annual recycling comes from jewellery and 10% from technology. Source: Bloomberg, Company Filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, World Gold Council

*Computed using 10-year average annual demand from 2011 to 2020. Regional breakdown excludes central bank demand due to data availability. Includes: jewellery and technology net of recycling, in addition to bars and coins, ETFs and central bank demand which are historically reported on a net basis. It excludes OTC demand. Figures may not add up to 100% due to rounding. 
**Net jewellery and technology demand computed assuming 90% of annual recycling comes from jewellery and 10% from technology.

Source: Bloomberg, Company Filings, ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, World Gold Council

 

Major trends have reshaped gold demand

Consumer demand is fuelled by transformational economic growth in China and India. In the early 1990s China and India accounted for 25% of global gold demand. Today, increased wealth has boosted their combined share to nearly 50% (Chart 19).4 Expansion of wealth is one of the most important drivers of gold demand over the long run, fuelling jewellery consumption, investment in technology and the acquisition of gold bars and coins.5

 

Chart 19: India and China have doubled their gold market share in less than two decades

India and China have doubled their gold market share in less than two decades

Emerging market economic development has created consumer demand and increased market share in India and China*

India and China have doubled their gold market share in less than two decades
Emerging market economic development has created consumer demand and increased market share in India and China*
*As of 31 December 2020. Consumer demand is defined as the sum of jewellery, bar and coin demand. On Goldhub.com see: Gold Demand Trends. Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer

*As of 31 December 2020. Consumer demand is defined as the sum of jewellery, bar and coin demand.

On Goldhub.com see: Gold Demand Trends.

 

Among institutional and retail investors the introduction of gold-backed ETFs and similar products has had a material impact on the demand for and exposure to gold. By the end of 2020, gold ETFs had amassed approximately 3,752t of gold, worth US$228bn, since they were first launched in 2003 (Chart 20).6 The recent growth is particularly pronounced in Europe, where market share has neared levels on par with North America, a sign of global acceptance. Additionally, gold ETFs have become a larger component of overall investment demand (see: Global gold ETFs: A popular gateway to the gold market).

 

Chart 20: Gold-backed ETFs have introduced new investors to gold across the world

Gold-backed ETFs have introduced new investors to gold across the world

Annual ETF gold demand and cumulative holdings*

Gold-backed ETFs have introduced new investors to gold across the world
Annual ETF gold demand and cumulative holdings*
*As of 31 December 2020. Includes gold-backed ETFs and similar products. On Goldhub see: Global gold-backed ETF holdings and flows. Sources: Bloomberg, Company Filings, World Gold Council; Disclaimer

Sources: Bloomberg, Company Filings, World Gold Council; Disclaimer

*As of 31 December 2020. Includes gold-backed ETFs and similar products. 

On Goldhub see: Global gold-backed ETF holdings and flows.

 

Central bank demand transformed in recent years. Reserve managers have been net buyers of gold since 2010 and, more recently, they have purchased multi-decade record amounts of gold, using the asset to diversify their foreign reserves (Chart 21).

 

Chart 21: Central banks have been a steady net source of demand since 2010, led by emerging markets

Central banks have been a steady net source of demand since 2010, led by emerging markets

Net global central bank gold demand*

Central banks have been a steady net source of demand since 2010, led by emerging markets
Net global central bank gold demand*
*As of 31 December 2020 On Goldhub see: Monthly central bank statistics Sources: Metals Focus, Refinitiv GFMS, World Gold Council

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer

*As of 31 December 2020
On Goldhub see: Monthly central bank statistics

 

Appendix II:

Long-term gold performance

 

Chart 22: Gold returns have been on par with equities and above bonds since the end of the gold standard

Gold returns have been on par with equities and above bonds since the end of the gold standard

Compounded annual growth rate (CAGR) and average annual returns for major asset classes*

Gold returns have been on par with equities and above bonds since the end of the gold standard
Compounded annual growth rate (CAGR) and average annual returns for major asset classes*
*Data from 1 January 1971 to 31 December 2020. Return computations in US dollars for ‘cash’: ICE 3-month Treasury; ‘US bonds’: Bloomberg Barclays US Bond Aggregate, ‘US equities’: ‘US equities’: MSCI Daily TR Gross USA USD; ‘Global equities’: MSCI World Net Total Return, ‘EM equities’: MSCI Daily TR Gross EM USD; ‘commodities’: Bloomberg Commodity Index; and ‘gold’: LBMA Gold Price PM. CAGR is defined by the price of the asset at the ending period, divided by the beginning price value raised to the (1/n) years minus 1. Average annual returns are calculated as the arithmetic mean of y-o-y returns over the time horizon. **Emerging market returns based on available data beginning in January 1988. On Goldhub.com: Gold returns. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Data from 1 January 1971 to 31 December 2020. Return computations in US dollars for ‘cash’: ICE 3-month Treasury; ‘US bonds’: Bloomberg Barclays US Bond Aggregate, ‘US equities’: ‘US equities’: MSCI Daily TR Gross USA USD; ‘Global equities’: MSCI World Net Total Return, ‘EM equities’: MSCI Daily TR Gross EM USD; ‘commodities’: Bloomberg Commodity Index; and ‘gold’: LBMA Gold Price PM. CAGR is defined by the price of the asset at the ending period, divided by the beginning price value raised to the (1/n) years minus 1. Average annual returns are calculated as the arithmetic mean of y-o-y returns over the time horizon.
**Emerging market returns based on available data beginning in January 1988.

On Goldhub.com: Gold returns.

 

Footnotes

1Based on the December 2019 LBMA Gold Price and 2019 above-ground estimates by Metals Focus, Refinitiv GFMS and the World Gold Council.

2Based on Metals Focus and Refinitiv GFMS 10-year mine production average as a percentage of above ground stocks, as of December 2019.

3Ibid footnote 1

4As of 31 December 2020.

5Ibid.

6As of 31 December 2020.

 

Additional Reading

We include below a list of publications by the World Gold Council that discuss relevant aspects of gold for investors:

Market and Investment Updates

Gold Demand Trends

In-depth reports

Gold Investor 

Primers

 

Important disclaimers and disclosures

© 2021 World Gold Council. All rights reserved. World Gold Council and the Circle device are trademarks of the World Gold Council or its affiliates.
All references to LBMA Gold Price are used with the permission of ICE Benchmark Administration Limited and have been provided for informational purposes only. ICE Benchmark Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced. Other content is the intellectual property of the respective third party and all rights are reserved to them. 

Reproduction or redistribution of any of this information is expressly prohibited without the prior written consent of World Gold Council or the appropriate copyright owners, except as specifically provided below.

The use of the statistics in this information is permitted for the purposes of review and commentary (including media commentary) in line with fair industry practice, subject to the following two pre-conditions: (i) only limited extracts of data or analysis be used; and (ii) any and all use of these statistics is accompanied by a citation to World Gold Council and, where appropriate, to Metals Focus, Refinitiv GFMS or other identified copyright owners, as their source. World Gold Council is affiliated with Metals Focus.

Neither the World Gold Council nor any of its affiliates (collectively, “WGC”) guarantees the accuracy or completeness of any information. WGC does not accept responsibility for any losses or damages arising directly or indirectly from the use of this information.

This information is for educational purposes only. Nothing contained herein is intended to constitute a recommendation, investment advice, or offer for the purchase or sale of gold, any gold-related products or services or any other products, services, securities or financial instruments (collectively, “Services”). This information does not take into account any investment objectives, financial situation or particular needs of any particular person.    

By receiving this information, you agree with the intended purpose of this information as being for educational purposes only.  Diversification does not guarantee any investment returns and does not eliminate the risk of loss.    

Investors should discuss their individual circumstances with their appropriate investment professionals before making any decision regarding any Services or investments.

This information contains forward-looking statements, such as statements which use the words “believes”, “expects”, “may”, or “suggests”, or similar terminology, which are based on current expectations and are subject to change. Forward-looking statements involve a number of risks and uncertainties. There can be no assurance that any forward-looking statements will be achieved. WGC assumes no responsibility for updating any forward-looking statements.

Information regarding QaurumSM and the Gold Valuation Framework 

Note that the resulting performance of various investment outcomes that can generated through use of Qaurum, the Gold Valuation Framework and other information are hypothetical in nature, may not reflect actual investment results and are not guarantees of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.  World Gold Council and its affiliates and subsidiaries (collectively, “WGC”) provide no warranty or guarantee regarding the functionality of the tool, including without limitation any projections, estimates or calculations.