Gold Demand on the Downturn — Should Producers Be Concerned?

Gold Demand on the Downturn — Should Producers Be Concerned?

The price of gold has been on the upswing in recent weeks as unrest in the Middle East has led investors back into the precious metals market in order to avoid currency fluctuations. While the uptick in price has led to surging profits for gold explorers, slowing demand in China has sparked concerns that gold’s record run could be over. The Bedford Report examines the outlook for the Gold Market and provides research reports on Yamana Gold, Inc. (NYSE:AUY – News) & Rubicon Minerals Corporation (AMEX:RBY – News). Access to the full company reports can be found at:

On Thursday China posted a $7.3 Billion trade deficit in February — a significant reversal from January’s $6.5B trade surplus. This marked China’s first deficit in eleven months and its largest deficit in seven years. Concerns that China could raise interest rates once again are at the forefront for gold investors as higher Chinese rates may crimp gold demand because it increases the opportunity cost of holding the yellow metal.

According to the World Gold Council Chinese demand for gold as an investment surged 70 percent in 2010 from a year earlier, outpacing all other markets in terms of the rate of change in demand for gold bars and coins as a store of value. China and India jointly accounted for 51 percent of global gold demand for investment and jewelry.

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Concerns that gold’s price has finally peaked has led to the possibility that gold producers may soon begin hedging their output once again. Hedging programs allow producers to lock in current gold prices for future production, which guards against any potential price declines in the future.

According to a recent ABN AMRO gold hedging report, the collective increase in hedging amounted to a 21 percent gain last year and hedging activity has now been rising in each year that has passed since 2009.

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