Gold Price and Demand Overview

The price of gold rose 6% in calendar 2012, marking the 11th consecutive year of price increases for the precious metal. However, it was the smallest percentage increase in the annual average price since the beginning of the gold bull market in 2002. Demand for gold was influenced by brisk Central bank buying and resilient institutional investor demand, which were partially offset by flat jewelry demand and slightly lower bar and coin demand relative to the prior year. Over the same 12-month timeframe, the gold price averaged $1,670 compared with an average of $1,572 in calendar 2011.

Calendar Year 2012

Central banks were once again net purchasers of gold, adding 17.5 million ounces to their reserves, an increase of nearly 20% over the heavy demand seen in the previous year. According to historical records from the World Gold Council, this was the greatest level of demand in central bank buying in 50 years. Several countries more than doubled their current reserves including Brazil, Paraguay, and Iraq. Other notable accumulations occurred in Turkey (5.3 million ounces), followed by Russia (2.4 million ounces), and Brazil, the Philippines, and Kazakhstan (just over 1 million ounces each). The largest seller of gold was the central bank of Germany, shedding approximately 177,000 ounces for the purpose of minting commemorative gold coins.

The gold price also reflected strong investment demand for exchange traded funds (“ETFs”). According to the CPM Group 2, gold ETF holdings reached an all-time high of 86.5 million ounces on December 30, 2012, with net additions totaling 8.4 million ounces for the year.

In contrast, the demand for gold jewelry and physical gold bars and coins dropped by 4% and 17%, respectively. These demand categories tend to be consumer-driven, and were impacted by a temporary increase in import duties in India, price sensitivity in Thailand, South Korea and Vietnam, and a relative slowdown of the Chinese economy in 2012.

In calendar 2012, total gold supply decreased by 2%, as lower recycling activity offset a modest increase in mine production. A return to net producer de-hedging also contributed to the slightly lower total supply figure. Annual gold mine output was 86.6 million ounces in 2012, compared with 91 million ounces in 2011. This modest decrease was largely due to lower production from Argentina, Australia, Papua New Guinea, and South Africa, partially offset by increased production in Canada, China, Ghana, Mali, Mexico, Russia and Tanzania.

China was again the world’s biggest gold producer in 2012, with nearly 13 million ounces of production, followed by Australia with an output of 8.7 million ounces of gold. The United States was the third largest producer mining 8 million ounces, followed by Russia with 6.6 million ounces. South Africa, once a top producer, held fifth place with 5 million ounces of production.

Six Months to June 30, 2013

In the first six months of 2013, the average gold price decreased 8% from $1,651 to an average of $1,522 over the same period in calendar 2012. Investment demand fell 12% from the prior year period as investors interpreted signs of strength in the US economy as indication that quantitative easing may come to an end. The lower investment demand was partially offset by jewelry demand, which was up 21% from the prior year period, largely due to lower prices and pent up demand. Total supply of gold for the first half 2013 was down 4% ending the period at 66.1 million ounces, largely due to a lower supply of recycled gold.

Central bank purchases also dropped significantly in the first half of fiscal 2013, declining by 35% from 9 million ounces to 5.8 million ounces as of June 30, 2013. According to the World Gold Council’s Gold Demand Trends — Second Quarter 2013, the lower rate of purchasing was likely the result of volatile price moves during the period, weakness in emerging market currencies, and the declining rate of growth in foreign exchange reserves among the banks. The buying was concentrated among central banks in the Commonwealth of Independent States region, the largest of which was Russia, purchasing 482,000 ounces during the quarter ended March 30, 2013. Again, many of the developing countries’ purchases reflected a need for reserve diversification as they 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; by its Chief Financial Officer and Treasurer on the boards of the Northwest Mining Association and the Denver Gold Group;and by its Vice President, Investor Relations who serves as Chairman of the Board of Directors of the Denver Gold Group.

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

Colorado Mining Association – www.coloradomining.org
Denver Gold Group - www.denvergold.org
Minerals Education Coalition – www.mineralseducationcoalition.org
National Mining Association - www.nma.org
Nevada Mining Association - www.nevadamining.org
Northwest Mining Association – www.nwma.org
World Gold Council - www.gold.org

1. This information is derived from the World Gold Council, Thomson Reuters-GFMS, and the CPM Group 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.
2. From the CPM Gold Yearbook 2013, March 2013, Volume 27, Number 1.