Posted: August 1st, 2022


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(1393 – 1268)


The pre-COVID equilibrium point was in the intersection of Q1
and P1 with the Demand and Supply equal to D1 and S1.
According to World Gold Council, during 2020 pandemic, the
drastic shift to the left may be seen in both Demand and
Supply. Therefore, the quantity dropped significantly, however
the price grew up accordingly. It may be seen from the shifts
of P1 to P2 and Q1 to Q2.
In 2021, the demand has recovered from most of the COVID-
19 losses, therefore there was a positive shift to the right from
D2 to D3. However, the supply curve shifted to the left.
Consequently, the Price has increased from P2 to P3 as well as
Quantity from Q2 to Q3, making the new equilibrium in















Price elasticity of supply

It measures the responsiveness of a good or service to the
supply after the change in its market price.
Gold is a precious metal, primarily found and mined in
nature. Therefore, gold supply is limited to natural deposits
and can be described as inelastic. (Ross, 2022)




(1393 – 1268)
Q1 Q2







Deadweight Loss


MR2 D2

Economic Profit

Deadweight Loss

MR3 D3


Deadweight Loss

(4359,4 – 4454,3)

(4359,4 + 4454,3) / 2

Gold Pre and Post – COVID-19
Demand Equilibrium

Jewellery which stands for the greatest source and accounts
for ~50% of annual gold demand
Investment in gold as in a reliable, tangible, long-term asset
which reduces volatilitiy of the investment portfolio during
market crisis
Central Banks Holdings where the US, Germany and Italy take
the first 3 places in having the largest gold reserves
Technology where ~80% of gold is used by the electronics

(World Gold Council, 2022)

Demand for Gold consists of 4 major components:

In 2020, the global gold market was deteriorated by pandemic
disruption while registering highest prices over a decade.
However, in 2021, the demand was recovered from most of
COVID-19 losses with 50% growth y-o-y basis
Total annual jewellery demand dropped by 34% from 2019 to
2020; China and India as largest markets were the main
contributors to the decrease. In 2021, the jewellery
consumption fully recovered from COVID-19 destruction with
52% increase (skyrocketing Indian demand by 93% y-o-y
The investment demand grew up by 40% in 2020 showing the
investors’ interest for gold (both Bar and Coin and ETFs) at
high risk and uncertainty, economic slowdown, low interest
rates and fiscal policy expansion. In 2021, Bars and Coins
demand consecutively grow in the scope of high global
inflation, however the outflow in ETFs was seen due to appetite
for riskier investments (vaccines roll-out) signifying the overall
43% decrease in investments
The picture of 2020 in Central Banks is divided into 2 halves:
H1 – continuous buying trend, H2 – sharp increase in sales. Yet
the buyers’ number preponderates the sellers’ with
predominantly emerging market economies. In 2021, central
banks added 463t to global gold reserves, 82% higher
compare to


2020 gold demand for technology fell by 7% y-o-y and saw a
rapid recovery in 2021 with 9% compare to 2020 (World Gold
Council, 2022)

Supply for gold is measured predominantly from mine production (of new gold), which accounts for 75% each year. Annual demand,
however, requires more gold than it is initially produced through mining, and the gap is filled by recycling existing supplies, the
majority coming from jewellery. Almost all of the gold currently mined is presumably still available under certain form or another
and potentially recycled (World Gold Council,2022).

In 2019 the total supply increased by 2% y-o-y to
4,876 tones. Even though there was a positive
production growth seen in the leading nations’ mine
producers – Russia, Turkey, Australia, mainly due to
development in greenfield and brownfield, as well as
further government support to reduce trade deficit in
gold, the growth was outweighed by the decline in other
leading nation producers – China, where the local
government implemented stricter environmental
restrictions, and Indonesia’s big mining project, which
has ceased its production for the past years. Recycled
gold supply increased significantly up to 16%, as a
regard to the annual average US dollar gold price jump
and the currency weakness in India against the dollar.
(World Gold Council, 2020)


In 2021 the recycled gold supply fell 11%, as a result of lower gold prices in Q3 and Q4, higher demand for wedding jewellery,
and the withholding of many purchases from 2020 which have been made this year. On the other hand, mine production
encountered issues regarding safety in China, leading to a drop of 10%; however, many countries saw positive numbers in
their production output. Overall, total supply still continued to decrease in 2021, with 1% decrease from the previous year
(World Gold Council, 2022).

(1393 + 1268) / 2

D = = -0.23

Total supply in 2020 fell by 4% to 4,728t, predominantly
due to pandemic disruption and lockdown restrictions.
COVID-19 impacted the mine productions, with a decline of
3%, varying in countries depending on the spread of the
virus. The most significant fall in production was 34% in
Papua New Guinea as a result of cessation of operation in
their biggest mine. Another attribute for fall in supply came
from the decrease of 1% in recycling gold, due to closure of
retail outlets and higher local gold prices. (World Gold
Council, 2021)


According to statistics from World Gold Council, the LMBA gold prices actually grew up during 3 years under the
consideration from $1393 per 1 oz. in 2019 to $1799 per 1 oz. in 2021.(LBMA Precious Metal Prices, 2022) The
quantity of the demand dropped significantly in 2020 compare to 2019 from 4359 to 3657 tonnes which signifies a
shift of demand curve to the left. However, in 2021, according to the data mentioned in the “Demand” section,
demand achieved 4022 tonnes which symbolises the shift to the right of the demand curve. Supply dropped in 2020
by 4 % overall which was shown on the graph. Despite the recovery of demand in 2021, the supply continued to
drop (especially in recycled gold). Overall, the supply curve has moved to the left twice in 3 consecutive years.

% Change in Quantity Supplied
E s =

% Change in Price


(4876,2+4772,9) / 2

(1393 + 1268) / 2

E s = = 0.23

The data was taken from World Gold Council for 2018-2019
As the result is <1, the conclusion that the gold supply is price inelastic may be done

Price elasticity of demand

India is one of the major gold markets, and rising prosperity is significantly increasing demand, as already mentioned
in the previous point. Gold plays a vital role in the country’s culture, serving as a store of value, a symbol of wealth
and prestige, and an essential component of numerous traditions. Moreover, Indians’ main reason for purchasing
gold (regardless poor or rich) is for social events, such as weddings, where they have the saying “no gold, no
wedding”. Consequently, this high demand increases the wealth in the country, and leads to a deficit in the current
account, forcing the government to restrict gold consumption. However, India still remains the leader in gold
consumption worldwide, regardless of price fluctuations. (World Gold Council, 2022)

It measures the responsiveness of a good or service to the
demand after the change in its market price.
Likewise for the supply, the demand for gold is relatively
inelastic and comparatively non-reactive to the changes in the
market prices. (Price Elasticity of Demand, 2022)

India – the biggest player in the market

% Change in Quantity Demanded
E D =

% Change in Price

Geopolitical tension is associated with high uncertainty and therefore people tend to convert their savings
into precious metals, such as gold. It is perceived as a safe haven by investors and preferred as more stable
than other stocks.
Opportunity costs can also influence especially correlated with rising yields of bonds, as investors favour
returns on bonds more. (The Economic Times. 2022)
Gold is used not only as other financial alternatives but in a form of jewellery as gifts, etc. Hence, demand
within final consumers is also interwoven with seasonality factors, which usually drives the demand and
prices up during the holiday season, for instance in December. Moreover, fluctuations in the income of the
population may also change the demand, as it is related to their purchasing power.
The industrial use of gold also contributes to changes in demand. Gold is being used in the production of
semiconductors chips and other details for electronics. Therefore, demand for these products is positively
correlated with the demand for gold. Similarly, usage of gold is drastically increasing within the aerospace
industry, boosting its demand in return. (Manhattan Gold & Silver. 2022)

The data was taken from World Gold Council for 2018-2019
As the result is <1, the conclusion that the overall gold demand is price inelastic may be done It should be mentioned that the price elasticity of demand depends on the sector of gold demand analysed

Drivers of changes in Qd


Profit Maximization in Monopoly: MR=MC

The Qmax for a participant in Monopoly is equal to Q1 with P1 in 2019. The revenue is equal to P1*Q1. The economic
profit is equal to Q1*(P1-ATC).
Due to the shift in demand to the left in 2020, the Marginal Revenue has moved to the left as well. Therefore, the new
Qmax was found at Q2 point as well as new price in P2. Q2 and P2 are drastically lower than Q1 and P1, respectively.
Consequently, the economic profit dropped dramatically (Graph 2020).
However, in 2021 the demand for the gold has mostly recovered from the COVID-19 pandemic consequences, therefore
the demand shifted to the right, but still not to the same position as in 2019.
Correspondingly, the final Qmax was found in Q3 point as well as new market price in P3 point. Overall, the economic
profit has increased, however not to the same level as in 2019 still (Graph 2021).


India’s limited mining and recycling makes it significantly reliant on bullion imports to supply domestic demand.
Despite the high import taxes, the country’s imports are continuing to grow in order to meet the increasing
demand. For the past seven years, Indian’s supply accounted for 86% of imports, 13% of recycled gold, and mining
being only 1%, due to further restrictions implemented by the government, high taxational policies for mining
equipment, and closure of many mines due to COVID-19. In 2020, India’s main importers for bullion came from two
countries – Switzerland (44%) and UAE (11%). (The Economic Times, 2022)

By: Adnan, Anastasiia, Desislava, Ivana, Magdalena, Zoia

It is without doubt that the COVID-19 financially impacted the revenue of gold for the whole Indian market.
Nevertheless, the epidemic and its associated concerns may potentially increase demand for gold in India. Due to the
relatively dramatic increase in prices of gold, people are investing in anticipation of the next pandemic waves or
lockdowns, in terms of the ease of liquidation as social security. (Nair, 2021)

Immanuvel, S. and Lazar, D., 2020. Elasticities of Gold Demand—An Empirical Analysis Using Cointegration and Error Correction Model. Arthaniti: Journal of
Economic Theory and Practice, 20(2), pp.131-142.
India, P., 2022. India’s gold demand skyrockets to 797.3 tons in 2021: World Gold Council. [online] Available at: [Accessed 10 May 2022].
Investopedia. 2022. Price Elasticity of Demand. [online] Available at: [Accessed 9 May 2022].
LBMA. 2022. LBMA Precious Metal Prices. [online] Available at: [Accessed 9 May 2022].
Manhattan Gold & Silver. 2022. Industrial Gold: Aerospace – Manhattan Gold & Silver. [online] Available at:
[Accessed 9 May 2022].
Nair, R., 2021. India’s pandemic paradox: Poor pledge gold, rich buy more gold, pushing imports up by 200%. [online] ThePrint. Available at:
[Accessed 9 May 2022].
Ross, S., 2022. How Does Price Elasticity Affect Supply?. [online] Investopedia. Available at: [Accessed 9 May 2022].
Statista. 2022. Gold demand by purpose quarterly 2021 | Statista. [online] Available at: [Accessed 9 May 2022].
The Economic Times. 2022. How will rising bond yields affect gold as an asset class?. [online] Available at:

[Accessed 9 May 2022].
The Economic Times. 2022. India’s pandemic recovery means golden days ahead for jewelers. [online] Available at:
[Accessed 9 May 2022].
Tuovila, A., 2020. Economic Profit (or Loss) Definition. [online] Investopedia. Available at: [Accessed
9 May 2022].
World Gold Council. 2022. What We Do | World Gold Council. [online] Available at: [Accessed 9 May 2022].


(Gold demand by purpose quarterly 2021 | Statista, 2022)

(World Gold Council, 2022)
(World Gold Council, 2022)

(Gold supply by purpose quarterly 2021 | Statista, 2022)

(World Gold Council, 2022)

(Average price of gold across India 2013-2021 | Statista, 2022), (India, 2022)

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