Why are gold prices so high?

The price of gold is largely determined by the relationship between demand (the rate at which consumers and investors purchase gold in the form of bullion or jewellery) and supply (the rate at which gold is extracted from mines or recovered from recycling). Another factor is the strength of the US dollar, one of the currencies used by the Bullion Market.

Prices are high because since 2001 the overall output from goldmines has fallen by 10%. China increased its yield by 62%, but two big producers, South Africa and Canada, halved their output over the same period. A small proportion of gold is being recovered from recycled jewellery, but this isn’t compensating for the decline in extraction.

Worldwide demand for gold exceeds supply. Uncertain economic times have led investors large and small to buy gold as a ‘safe haven’. In any year the purchase of gold jewellery accounts for two-thirds of annual consumption. In 2010 consumption in China increased by 8%, and experts predict that this will grow in the future. Whilst the current recession has not affected the buoyancy of the Indian and Asian markets, where gold jewellery has always been highly prized, it can however play havoc with the Gold markets elsewhere in the world and subsequently prices can dip and rise very quickly!

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