Gold is a dense, bright yellow metallic element with a high luster. Gold is an inactive substance and is unaffected by air, heat, moisture, and most solvents. Gold has been coveted for centuries for its unique blend of rarity, beauty, and near indestructibility. The Egyptians mined gold before 2,000 BC. The first known, pure gold coin was made on the orders of King Croesus of Lydia in the sixth century BC.
Gold is found in nature in quartz veins and secondary alluvial deposits as a free metal. Gold is produced from mines on every continent with the exception of Antarctica, where mining is forbidden. Because it is virtually indestructible, much of the gold that has ever been mined still exists above ground in one form or another. The largest producer of gold in the U.S. by far is the state of Nevada, with Alaska and California running a distant second and third.
Gold is a vital industrial commodity. Pure gold is one of the most malleable and ductile of all the metals. It is a good conductor of heat and electricity. The prime industrial use of gold is in electronics. Another important sector is dental gold where it has been used for almost 3,000 years. Other applications for gold include decorative gold leaf, reflective glass, and jewelry.
In 1792, the United States first assigned a formal monetary role for gold when Congress put the nation's currency on a bimetallic standard, backing it with gold and silver. Under the gold standard, the U.S. government was willing to exchange its paper currency for a set amount of gold, meaning the paper currency was backed by a physical asset with real value. However, President Nixon in 1971 severed the convertibility between the U.S. dollar and gold, which led to the breakdown of the Bretton Woods international payments system. Since then, the prices of gold and of paper currencies have floated freely. U.S. and other central banks now hold physical gold reserves primarily as a store of wealth.
Gold futures and options are traded at the CME Group, NYSE-LIFFE U.S., the Bolsa de Mercado & Futuros (BM&F), EUREX, JSE Securities Exchange, and the Moscow Exchange. Gold futures are traded on the Hong Kong Exchanges & Clearing, the Indonesia Commodity & Derivatives Exchange (ICDX), the Multi Commodity Exchange of India (MCX), the Korea Exchange, Shanghai Futures Exchange (SHFE), and the Singapore Exchange (SGX). The CME gold futures contract calls for the delivery of 100 troy ounces of gold (0.995 fineness), and the contract trades in terms of dollars and cents per troy ounce.
Prices - CME gold futures prices (Barchart.com symbol GC) started 2014 on firm footing and rose to the high for the year in February of $1,392 an ounce, a 15-month high. The Bank of Japan's expansion of its emergency lending programs for another year boosted demand for gold as an alternative asset. Gold prices then traded sideways to lower through Q2 as the dollar strengthened on indications that the Fed would continue to taper QE3. Gold prices sold off in Q4 and slid to the low for the year in November at $1,130 an ounce, a 4-3/4 year low. The main bearish factors for gold were the rally in the dollar index to an 8-1/2 year high by year-end and strength in stocks as the S&P 500 continued to post record highs, which curbed safe-haven demand for gold. Also, the plunge in crude oil to a 5-1/2 year low reduced inflation expectations and undercut demand for gold as an inflation hedge. Fund support for gold slid throughout 2014 as long gold positions in ETFs by December fell to a 5-year low. Gold finished 2014 down -1.5% at $1,184 an ounce.
Supply - World mine production of gold rose +2.1% yr/yr to 2.860 million kilograms in 2014, a new record high (1 kilogram = 32.1507 troy ounces). The world's largest producers of gold in 2014 were China with 15.7% of world production, followed by Australia (9.4%), Russia (8.6%), the U.S (7.4%), and Peru and South Africa each with (5.2%).
Gold mine production has been moving lower in most major gold-producing countries such as South Africa, Australia, and the U.S. For example, South Africa's production of 150,000 kilograms in 2014 was down -6.3% yr/yr and that was about one-third the production levels of more than 600,000 kilograms seen in the 1980s and early 1990s. On the other hand, China's gold production in 2014 rose +4.7% to a record 450,000 kilograms. U.S. gold mine production in 2014 fell -8.3% yr/yr to 211,000 kilograms, just above 2009 production level which was the lowest production since 1988. U.S. refinery production of gold from domestic and foreign ore sources in 2014 fell -10.3% yr/yr to 200,000 kilograms. U.S. refinery production of gold from secondary scrap sources in 2014 fell -4.8% yr/yr to 200,000 kilograms.
Demand - U.S. consumption of gold in 2014 rose +3.1% yr/yr to 165,000 kilograms. The most recent data available from the early 1990s showed that 71% of that gold demand came from jewelry and the arts, 22% from industrial uses, and 7% from dental uses.
Trade - U.S. exports of gold (excluding coinage) in 2014 fell -37.8% yr/yr to 430,000 kilograms, below the 2012 record high of 695,000 kilograms. U.S. imports of gold for consumption in 2014 remained unchanged yr/yr at 315,000 kilograms, below the 2012 record high of 326,000 kilograms.
Articles from the Commodity Research Bureau (CRB) Commodity Yearbook. The single most comprehensive source of commodity and futures market information available, the Yearbook is the book of record of the Commodity Research Bureau, which is, in turn, the organization of record for the commodity industry itself. Its sources - reports from governments, private industries, and trade and industrial associations - are authoritative, and its historical scope is second to none. Additional information can be found at www.crbyearbook.com.