Gold Commodity

Gold is a dense, bright yellow metallic element with a high luster. Gold is an inactive substance and is unaffected by air, heat, moisture, and most solvents. Gold has been coveted for centuries for its unique blend of rarity, beauty, and near indestructibility. The Egyptians mined gold before 2,000 BC. The first known, pure gold coin was made on the orders of King Croesus of Lydia in the sixth century BC.

Gold is found in nature in quartz veins and secondary alluvial deposits as a free metal. Gold is produced from mines on every continent with the exception of Antarctica, where mining is forbidden. Because it is virtually indestructible, much of the gold that has ever been mined still exists above ground in one form or another. The largest producer of gold in the U.S. by far is the state of Nevada, with Alaska and California running a distant second and third.

Gold is a vital industrial commodity. Pure gold is one of the most malleable and ductile of all the metals. It is a good conductor of heat and electricity. The prime industrial use of gold is in electronics. Another important sector is dental gold where it has been used for almost 3,000 years. Other applications for gold include decorative gold leaf, reflective glass, and jewelry.

In 1792, the United States first assigned a formal monetary role for gold when Congress put the nation's currency on a bimetallic standard, backing it with gold and silver. Under the gold standard, the U.S. government was willing to exchange its paper currency for a set amount of gold, meaning the paper currency was backed by a physical asset with real value. However, President Nixon in 1971 severed the convertibility between the U.S. dollar and gold, which led to the breakdown of the Bretton Woods international payments system. Since then, the prices of gold and of paper currencies have floated freely. U.S. and other central banks now hold physical gold reserves primarily as a store of wealth.

Supply - World mine production of gold rose +4.0% yr/yr to 2.350 million kilograms in 2009, and was still below the record high of 2.570 million kilograms seen in 1999 and 2000 (1 kilogram = 32.1507 troy ounces). The world's largest producers of gold in 2009 were China with 13% of world production, followed by South Africa (9%), the U.S (9%), Australia (9%), and Russia (8%).

Gold mine production has been moving lower in most major gold-producing countries such as South Africa, Australia, and the U.S. For example, South Africa's production of 210,000 kilograms in 2009 was down -1.4% yr/yr and that was about one-third the production levels of more than 600,000 kilograms seen in the 1980s and early 1990s. On the other hand, China's gold production in 2009 rose +5.3 to a record 300,000 kilograms. U.S. gold mine production in 2009 fell 9.9% yr/yr to 210,000 kilograms, which was the lowest production level since 1988. U.S. refinery production of gold from domestic and foreign ore sources in 2009 rose +1.2% yr/yr to 170,000 kilograms. U.S. refinery production of gold from secondary scrap sources in 2009 rose +5.0% yr/yr to 190,000 kilograms.

Demand - U.S. consumption of gold in 2009 fell -3.4% to 170,000 kilograms. The most recent data available from the early 1990s showed that 71% of that gold demand came from jewelry and the arts, 22% from industrial uses, and 7% from dental uses.

Trade - U.S. exports of gold (excluding coinage) in 2009 fell -32.2% yr/yr to 385,000 kilograms, down from the 16-year high of 568,000 kilograms seen in 2008. U.S. imports of gold for consumption in 2009 rose +47.2% yr/yr to 340,000 kilograms, down slightly from the 2005 level of 341,000 kilograms, which was a 22-year high.