Strong demand has contributed to significant rises in the gold price in recent years. The price reached a new high of US$1,421.00 per ounce on 9 November 2010. The average gold price in 2010 was a record US$1,224.52 per ounce, compared with US$972.35 in 2009.
LME annual average gold price
Market outlook
We believe the outlook for gold demand is positive. Investment demand is expected to remain strong on the back of continued uncertainty in the global financial markets. inflation expectations and foreign currency volatility. Negative real estate rates also make gold an attractive store of value.
Demand for gold also should be supported by fabrication demand from the jewellery sector, especially in India and China.
Another reason to be positive about the gold price is its relationship with equity prices. The chart below shows the long-term historical ratio of the Dow Jones index and the gold price.
Dow index/gold price historical ratio
The ratio's comparatively high level was one of the factors that encouraged us to enter the gold market in 2007. While the rise in the gold price has brought the ratio down since then, we believe there should be further to go. Our view is that the ratio should trend towards 1:1, suggesting that there is still upside in the gold price. This underpins our positive view of the industry and of our prospects.