Is Gold Demand Increasing...???

Every investor should know that nothing goes up in a straight line forever. Gold is no different. There will be temporary reactions as events change around us and, as the global financial crisis is proving, events cannot be anticipated even by the brightest of economists, who are not always so bright. Many of them still don't even realize that China is a bigger energy consumer than the US, not to mention being the biggest buyer of autos worldwide.

This increased demand means rising prices in the most basic commodities which are moving in the same direction. Oil is still holding at around US$80 per barrel when it is normally lower at this time of year. The drought that has hit Russia's grain belt, which runs from the Black Sea to Siberia, is starting to affect food prices as water becomes an ever-growing problem.

India and China are already seeing rising domestic inflation rates. As the old saying goes, "America catches a cold and Europe gets pneumonia". Now we are in thrall to the East.

But what about the supply and demand for gold? First, let's look at the advances being made for its industrial use. Normally, in this area, gold has always lagged silver which has many applications in the medical, electrical and photographic arenas. It has come to our attention that a team of scientists at Oregon University think they have discovered a way to release energy from bacteria found in raw sewage. The key to this process is coating the graphite anodes with a tiny amount of gold. This tiny amount of gold on an anode will use a massive amount of gold if the technology is duplicated around the world. What do you think this would do for the price of gold?

And now China has just announced measures to liberalise its local gold market even further. Thai farmers traditionally have put a bit of gold under their beds after a good harvest as insurance against worse times ahead and now the Chinese have adopted the same basic view. It has an essential role in the psyche of people in Asia and the Far East..

As you may know, the current population of China is around 1.32 billion people. What if they all bought 1 gramme of gold this year- 1 gramme not one ounce? That would remove 1,750 tonnes of gold from the market, which is more than half the world's annual production. Now apply that to India with a population of 1.15 billion and rising, and total production is accounted for. In both countries there is a massive migration from country to towns as citizens look for higher income. Along with higher incomes will come higher amounts of gold being put aside for investment or decoration or both.