Gold Price

The average gold price in calendar year 2010 increased 26% to $1,224.25 as continued economic and political uncertainties, together with increased demand in all sectors, contributed to the ninth straight year of increased value. Annual gold demand grew 11% to 129 million ounces, a 10-year high, valued at $157 billion. For Royal Gold’s fiscal year ended June 30, 2011, the gold price started the year at $1,234 and ended at $1,505.50. Also during this period, the London PM gold fixing reached an all-time high of $1,552.50 on June 22, 2011.

Calendar Year 2010

The positive performance for gold reflected strong growth in jewelry demand due to a significant comeback in the Indian market, a modest increase in private investment demand and a shift in central bank investment flows. Year over year, physical bar investment grew by approximately 75%, the highest figure over the past decade and more than triple the demand five years ago. Despite a decreased demand in ETFs and similar products over the previous year, it was still the second highest year on record for this investment category. Approximately, 11.8 million ounces were added to ETF holdings, with collective holdings at the end of calendar 2010 estimated to be approximately 69 million ounces. Despite higher prices, fabrication demand for gold increased in 2010, from 71.5 million ounces to 80 million ounces, of which 65 million ounces were attributable to jewelry manufacturing. In sum, total gold demand for calendar 2010, excluding central banks, was 129 million ounces, 62% of which was attributable to fabrication requirements and the remainder to investment activity.

Central banks became net purchasers of gold for the first time in over two decades adding 10.2 million ounces to their reserves. There were two significant forces behind this new trend. One is that the rapidly growing emerging markets became substantial buyers for the first time and the second factor is that European central banks, which hold significant amounts of gold in their external reserves, were less inclined to sell in the wake of the global financial and European sovereign debt crises. Russia led the emerging market economies with purchases of 4.5 million ounces. Some market experts believe that China may also have continued to buy local mine production, which it has done regularly in the past. Excluding the International Monetary Fund, the top five central bank gold owners, as of December 2010, are the United States, Germany, Italy, France and China. While the first four of these countries hold gold that, on average, equals 72% of their foreign exchange reserves, China’s total holdings represent less than 1.7% of their total reserves.

In terms of supply for 2010, mine production of 87 million ounces represented the largest portion of total gold supply of 134 million ounces, with the remainder provided by scrap, recycling or producer de-hedging. This was a 4% increase in mine production over the previous year. China was the world’s biggest gold producer in 2010, with 11.3 million ounces of production, followed by Australia, which mined 8.4 million ounces of gold. The United States was third, mining 7.5 million ounces, and Russia narrowly overtook South Africa as the number four miner with 6.5 million ounces. South African production fell by 7.5 percent, lagging Russia by four thousand ounces.

Six Months to June 30, 2011

In the first six months of 2011, the gold price continued to rise, increasing to an average of $1,444.00 versus an average price of $1,153.00 for the comparable period in 2010. The second quarter ended June 30, 2011, showed healthy levels of demand across all sectors. Strong growth in jewelry and technology demand was offset by a decline in ETF demand from the record levels in the second quarter of 2010. Total demand for the six months ended June 30, 2011 was 61 million ounces, a decrease of 5% over the comparable 2010 period. Compared with the first half of 2010, jewelry demand rose to 53% of total demand from 47%, technology demand was stable at 12% for both periods and private investment demand decreased to 35% from 41%. Total supply of gold through the first half of 2011 was 62 million ounces, down 4% from the same period last year as higher mine production was more than offset by official sector purchases. The central banks remained net buyers of gold, purchasing 6.2 million ounces or nearly three times the 2.3 million ounces purchased in the first half of 2010. The buying was concentrated among emerging economies, which remain largely underweight in their allocation of gold compared with larger, more developed countries.

Organizational Involvement

Royal Gold is an active participant in organizations involved in promoting the mining industry and the use of gold. The Company is a member of the World Gold Council, and is represented by its President and Chief Executive Officer on the board of the National Mining Association, by its Vice President of Operations on the boards of the Nevada and Colorado Mining Associations; and by its Chief Financial Officer and Treasurer on the board of the Northwest Mining Association.

For more information on gold, you can visit the following web sites:

World Gold Council - www.gold.org
National Mining Association - www.nma.org
Nevada Mining Association - www.nevadamining.org
Colorado Mining Association – www.coloradomining.org
Minerals Information Institute – www.mii.org

1 This information is derived from the World Gold Council and GFMS and represents the data and opinions of those sources. Royal Gold has not verified this data and presents this information as a representative overview of views on the gold business from gold industry sources. No assurance can be given that this data or these opinions will prove accurate. Investors are urged to reach their own conclusions regarding the gold market.