Gold Sector in Australia: Factors Affecting Price, Demand and Supply

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GOLD SECTOR IN AUSTRALIA
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Article Summary
The article titled “Gold fever strikes with companies scrambling to open mines as prices
stay high” from ABC news by Babs McHugh on 28th July 2017 highlights the current trend in
Australian gold industry. Nearly insatiable demand for gold from countries like India and China
as well as low Australian dollar has increased the price of this commodity. The current price of
gold is 1600 Australian Dollars per ounce, and both large scale and small scale gold miners are
comfortable with it (McHugh, 2017). The high price of gold has also been instrumental in the
economic growth of Australia due to export earnings and employment in the gold mines.
The key players in this industry primarily the gold mining companies are paying close
attention to the current trend in the gold market. There is a gold rush as gold miners attempt to
hunt for more gold to satisfy the rising demand. The study conducted by Gold Industry Group
show that at least half of exploration expenses in Australia in 2016 was directed into the hunt of
gold. Kalgoorlie-based Topdril is among those companies that are extending their gold hunt
(McHugh, 2017). However, the efforts of gold mine companies to supply gold in Australia have
been hampered by inadequate qualified workers especially the drillers.
Economic Analysis
Factors Affecting the Price of Gold in Australia
Risk of International Monetary System and Politics
The global monetary system and politics impact the price of gold. When the international
financial system becomes less stable or during times of global political tension, the price of gold
often increases (Maclean, 2013, p.58). During such moments, the central banks all over the

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world usually sell the assets and purchase gold since the prices of assets may decline during
periods of instability or crisis. In 2016, specific events took place that facilitated the increase in
the price of gold in Australia. These events include geopolitical turbulence in the wake of Brexit,
stagnation in global interest rates and the election of United States President Donald Trump
(Department of Industry, Innovation and Science, 2018).
The Value of the Australian Dollar
Changes in the value of Australian dollar tend to sway the price of gold. When other
factors are constant, the price of gold will rise when the Australian dollar depreciates. When the
value of Australian dollar falls, the Reserve Bank of Australia will diversify the risk by investing
in other assets like gold (Department of Foreign Affairs and Trade (DFAT), 2018). Therefore,
the price of gold will increase. In 2017, the value of Australian dollar fell and hence an increase
in the price of gold.
Demand and Supply of Gold
When others factors influencing the price of gold are constant, the gold prices will go up
when the demand for gold is higher compared to supply in the market. On the other hand, when
the supply is high, which is a rare case, then, the price of gold will decline. Factors influencing
the Demand for gold in Australia are as follows.
Changes in Taste for Jewelry
Jewelry sector is the highest consumer of gold both in Australia and globally. Studies
show that this sector consumes approximately 68% of the total gold supply (Department of
Foreign Affairs and Trade (DFAT), 2018). In the recent years, there has a favorable change in