Well, all the gold that's ever been mined throughout all of human history is estimated at 165,000 metric tons. That's about 5.3 billion ounces... which sounds like a lot until you realize it's less than one ounce for each human currently living on the planet.
At the $1,500 oz. world price for gold in May 2011, all the gold in the world has an implied value of about $7.9 trillion. That's more than half the GDP of the entire United States for a whole year. At first blush, that may sound like a lot of gold.
But melted down into traditional 14-inch gold bars weighing about 27 pounds each, all the gold on the surface of the earth... all the gold that's ever been mined and refined through thousands of years of human history... would fit easily into a simple 4-story office building in Columbia, Maryland! All the gold mined in the world during the past year would fit into the living room of my modest suburban ranch house!
Supply & Demand
Like any commodity, the price of gold is responsive to changes in supply and demand. Gold currently fetches 5 times the price it commanded as recently as 2002!
A dramatic move like that cries out for an explanation, and the simple fact that gold is "scarce" is not a very satisfying one. To help us judge whether it makes sense to own gold as an investment at today's elevated price, let's examine the forces of supply and demand that actually influence the price of gold.
We've identified three main sources of SUPP LY that affect the total quantity of gold available for investment:
The portion of current mine production that does not go into the non-investment categories. This has added about 1.5% a year to the supply of investment gold.
The migration of bullion from central bank reserves into investment gold.
Melting down jewelry to manufacture gold bars (not believed to be significant).
Here are five of the current influences on the DEMAND for gold as an investment that we think matter most:
1. Investment in gold as protection against the debasement of fiat currencies in the developed world (by both individual and institutional investors).
2. Speculative, price-sensitive demand; "momentum" traders.
3. Growing prosperity in the emerging markets which have traditionally regarded gold as a store of wealth and status symbol.
4. High valuation of stocks and bonds raises gold's relative attraction as an investment.
5. Rising international stress increases interest in gold as a "safe haven" during crises.
Mine Production
Pure gold wrestled from the earth at great cost is, of course, the only thing that supplements the existing quantity of gold in the world. Let's take a brief look at the history of gold mine production.