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Details of demand for gold and silver

Gold demand

In terms of gold demand, jewelry remains the most significant demand component. The decisive factor for the outstanding importance of gold jewelry is that it is regarded as a capital investment in various countries - such as India, Turkey or the Middle East - and traditionally has a central role as a dowry. However, its share of total gold demand has been declining for years, due to falling jewelry demand in many Western countries and the simultaneous expansion of other demand components (especially coins and bars): in 2011, it accounted for just over two-fifths of demand, down from more than four-fifths in 2000. The share of the industrial sector fluctuated between 9% and 12% in the past decade (2011: 10%).

Development of gold demand since 2000


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Development of demand for gold since 2000

Source:  Own calculation and presentation according to data from the World Gold Council (Internet retrieval from 01.10.2012).

There has been a strong increase in gold demand for investment purposes: while coins, bars and investments accounted for only 4% of gold demand in 2000, this figure had already risen to 36% by 2011. in 2010, moreover, there were net purchases by central banks for the first time (0.1 thousand tons); in 2011, the share of central bank purchases in gold demand was already 10% at over 0.4 thousand tons. By contrast, de-hedging played no role in 2011, having accounted for 3% of demand in the previous year and as much as 11% in 2006 and 2007.

Silver demand

Silver demand amounted to 32.4 thousand tons in 2011. Some components declined: the share of photography fell to 6% (2000: 24%), that of silverware to 4% (2000: 10%) and that of jewelry to 15% (2000: 19%). De-hedging did not play a net demand-relevant role in 2011, as it was surpassed by hedging and was therefore a supply component.[1]

Development of silver demand since 2000

Development of demand for silver since 2000

Source:  Own calculations and presentation based on data from the World Silver Survey (internet retrieved 01.10.2012).

The share of industrial demand in silver demand increased to 47% (2000: 41%). The share attributable to coins and medals also increased significantly to 11% (2000: 3%), reflecting the increased appreciation of silver as a store of value and investment. The same applies to investment demand: in 2011, investment accounted for 16% of demand, compared with disinvestment amounting to 9% of demand in 2000. Investment demand also gained in importance with the introduction of silver ETFs - Exchange Traded Funds - which are required to back their deposits with physical silver (see again chapter 5).

Recycling of gold and silver

The most important supply component, mining, was already discussed in chapter 4. The second most important supply component is recycling. This includes, on the one hand, the recovery of gold and silver in the industrial sector and, in the case of silver, also in photography, and, on the other hand, the melting down of old gold and silver, the so-called scrap. Two different areas are thus subsumed. Precious metal recovery reduces net consumption in certain applications, while the melting down of old gold and old silver is at the expense of the above-ground precious metal stock and is thus actually a reallocation between different applications.

Silver in photography

In the mid-19th century, a process was developed by which photographs could be made by applying grains of a silver halide to a light-sensitive image plane and reducing them to metallic silver on exposure, using developing emulsions.[2] Photography went on to become one of the most important consumers of silver and was largely responsible for the increase in demand for silver after World War II. In this context, silver consumption by photography is not recorded together with industrial consumption, but represents a separate demand category. In 1998 and 1999, it accounted for more than 7 thousand tons of silver.

Since then, analog photography has been gradually substituted by digital photography. As a result, silver demand from photography has been declining by an average of 10% per year since 1999. Nevertheless, the price of silver has multiplied since the turn of the millennium. Apart from increases in demand in other areas, on the demand side this is also related to the fact that more than two thirds of the silver used in analog photography is recyclable. Indeed, silver halides that are not sufficiently exposed to light are not reduced and washed out with the fixing solution. Silver that goes into solution during development is largely recoverable, with only around 20 % remaining in the photographic paper. If the demand for analog films falls, the resulting recycling booked on the supply side will therefore also fall.

Silver demand in photography since 1990

Photography silver demand falling sharply

Source:  Own illustration based on data from the World Silver Survey (Internet retrieved on 01.10.2012).

Assuming that the recycling rate was 65% in 1999 and 70% in 2011, so that only 35% and 30%, respectively, of the silver demanded by photography was irretrievably consumed, the silver mining consumption of the decline in analog photography is calculated as follows:

2.1 thousand tons in 2011 x 0.3 - 6.8 thousand tons in 2000 x 0.35 =

-1.6 thousand tons of underconsumption due to the decline in photography

On balance, only 1.6 thousand tons less silver (5% of total silver demand) was consumed in 2011 than in 1999 due to the decline in silver demand from analog photography. Net silver consumption from photography could fall by a maximum of another 0.6 thousand tons, but there is now an emerging trend to increasingly make prints or printouts from digital photographs. Prints of digital photographs, however, have a much shorter shelf life than those of analog photos (analog black-and-white photos retain their quality even after a hundred years, and they are also considerably sharper than digital photographs).[3] In order for them to last longer and not fade as quickly, they have to be printed on high-quality paper - and this contains silver. In the industrialized countries, analog photography will also retain a certain importance. This also applies to developing and emerging countries, since digital photography requires equipment with appropriate cameras and a computer (both of which contain silver), which not everyone is likely to be in a position to purchase; in addition, recycling rates are lower in these countries.

Gold and silver in electronics

In the electronics sector, which accounts for two-thirds of industrial demand for gold and more than half for silver, the possibilities for recycling are limited, since only very small quantities are usually required per product unit. Recycling is therefore generally too costly and therefore uneconomical. This will not change even if rising precious metal prices and - due to technical progress - more effective recovery methods increase their economic efficiency.


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Silver in batteries

Batteries are one of the few industries where recycling plays a role due to the possibility of recovery via thermal separation of metals. Retailers, as well as consumers, are required by regulation to take back or return spent batteries. What is an advantage in the case of the decline in analog photography, since the high recycling rate largely offsets the effect of falling demand by equally falling recycling volumes on the supply side, would be a disadvantage in the longer term in the case of a substitution of lithium batteries by, for example, silver-zinc batteries, since part of the associated additional silver consumption would at some point come back onto the market as recycled volumes.

Used precious metal melting

Basemetals are gold and silver processed into commodities, art objects, jewelry, coins or bars. The processing costs are honored by the market through price premiums when sold. In the case of smelting, not only would this premium on the precious metal price be eliminated, but a discount would also have to be borne for the costs of smelting and separation. Although melting down can occasionally be observed in phases of overheated market prices, there is no rational justification for such market behavior.


This article was written by Dr. Jochen Dehio - author of the book"Gold oder Silber - wem gehört die Zukunft?

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[1] Beim De-Hedging handelt es sich also ebenso wie bei Investitionen um eine Nettoposition. Den im Schaubild ausgewiesenen Anteilen liegen demnach die Salden aus Investitionen und Desinvestitionen bzw. De-Hedging und Hedging zugrunde (bei negativen Salden werden sie dem Angebot zugerechnet, bei positiven der Nachfrage).

[2] Zur Geschichte der Fotografie: Wikipedia, Fotografie (Internet: Fotografie, Abruf vom 01.10.2012).

[3] Vgl. Morgan, D. (2007), Insiderwissen Silber. Investieren in die Zukunft. FinanzBuch Verlag, München: S. 36.