Gold Market Overview

In 2013, gold supply flowed from west to east as lower relative prices fueled record sales for gold bars, jewelry and coins, particularly in Asia and the Middle East. Several central banks in those regions also embraced the opportunity to add to their gold reserves. The gold price was impacted by increased supply from gold exchange-traded funds (“ETFs”), as improved expectations for growth in the US attracted some capital away from gold.

The gold price declined on a year-over-year basis for the first time in 12 years, averaging $1,411 per ounce in calendar 2013 compared with an average of $1,669 per ounce in calendar 2012, representing a decrease of 15%. Total gold demand was 3,756 metric tons (“tonnes”) in 2013, which is equivalent to $US170.4 billion.

Calendar Year 2013

Jewelry, bar and coin purchases set the pace for gold demand in 2013. Two factors strongly influenced consumers: first, low prices, fueled by ETF selling in April and June 2013, respectively, prompted consumers to take advantage of favorable market rates, particularly in China; second, India imposed import restrictions on gold in 2013, which limited officially imported gold supply, resulting in higher consumer demand for gold.

Jewelry comprised 59% of total gold demand in 2013, up 17% in volume terms from 2012. This was the largest volume increase since 1997, as the sector grew steadily throughout the year. Record gold jewelry demand was reported in India, China, and Turkey, with western markets also noting strength towards the end of the year.

Bar and coin purchases also increased briskly, up 28% in volume terms from 2012. The strongest year on year growth occurred in China, Thailand, Turkey, and India. It was reported that many bar and coin purchases were made by consumers for whom the lower relative prices was a strong incentive for accumulation.

Central banks were net purchasers of gold for the fourth straight year. Russia (77 tonnes), Kazakhstan (28 tonnes), Azerbaijan (20 tonnes) and South Korea (20 tonnes) made large purchases. A 3.5 tonne sale from Germany related to its coin minting program was the lone central bank sale in 2013.

The amount of gold used in technology was stable from 2012, driven by use in smartphones and tablets, offset by lower industrial, decorative, and dental use.

Gold mine production increased 5%. While several new mines ramped up production or expanded capacity around the globe, this new production is exhibiting lower average gold grades, resulting in muted overall production gains. This slightly higher overall gold production was offset by the sixth consecutive year of lower gold recycling, which was down approximately 14% from 2012 levels.

Six Months to June 30, 2014

In the first six months of 2014, the gold market is experiencing a steadier price environment than a year ago, trading within a rather narrow range and averaging $1,291 per ounce. This is down 15% from the average price of $1,522 per ounce in the first half of calendar 2013.

Early 2014 reports from the most active gold buying regions such as China and India suggest that consumer demand for jewelry in particular has returned to post-financial crisis levels as the price volatility has moderated.

Investment demand from the combination of bars, coins and ETFs was little changed from a year ago, up 1% from the first half of 2013. Industry analysts suggest this may be a function of the strong bar and coin demand a year ago being absorbed into the market, while gold ETF investors held onto their positions during the period.

Central banks continued to be net buyers, adding 241 tonnes in the first half of 2014, which is in line with the recent historical averages. Notable accumulations came from Russia, Kazakhstan, and Tajikistan, while Ecuador announced it would engage in a 3-year gold swap to help improve its domestic finance situation.

Through the end of June, gold mine production has increased by approximately 58 tonnes over the same period a year ago. However, the World Gold Council predicts that mine supply recently may have peaked, suggesting that the current rate of gold production growth will slow down over the next few quarters as the low gold price environment results in less production from the industry’s highest cost operations. Recycling activity has also declined to levels not seen since early 2007, as the lower price environment is less advantageous for consumer and industry recycling.

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 board of the American Exploration and Mining Association; 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 websites:

American Exploration and Mining Association - www.miningamerica.org
Colorado Mining Association - www.coloradomining.org
Denver Gold Group - www.denvergold.org
Minerals Information Institute – www.mil.org
National Mining Association - www.nma.org
Nevada Mining Association - www.nevadamining.org
World Gold Council - www.gold.org

1. This information is derived from the World Gold Council and represents the data and opinions of that source. 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.