Gold Price and Demand Overview

The gold price rose in calendar 2011 for the 10th consecutive year. The average annual price increased 28%, ending the year at $1,572 per ounce. World economic and political uncertainties again led to increased demand across key sectors. According to World Gold Council statistics published in August 2012, annual gold demand in calendar 2011 grew 10% to 147 million ounces, valued at approximately $231 billion. For Royal Gold’s fiscal year ended June 30, 2012, the gold price increased 6%, ending the year at $1,599 per ounce. Also, during this fiscal period, gold attained historic levels as the London PM gold fixing reached an all time high of $1,895 per ounce in September 2011.

Calendar Year 2011

The robust price performance for gold reflected increased demand in bar and coin holdings and strong central bank buying. In contrast to these other investment factors, demand for exchange traded funds (“ETF”) and similar products decreased by over 50% from 12.3 million ounces to slightly less than 6.0 million ounces in 2011, a seven-year low. Despite this fact, combined gold holdings for ETF’s and related products, reached a record 79 million ounces on December 13, 2011, ending the year at approximately 78 million ounces. Jewelry and technology sectors both weakened slightly but remained resilient in the face of higher annual gold price increases.

Central banks were net purchasers of gold adding 14.7 million ounces to their reserves, compared with 2.5 million ounces in calendar 2010. Mexico led central bank purchases, buying 3.2 million ounces, followed by Russia with 3.0 million ounces, Turkey with 2.6 million ounces, and Thailand and South Korea, at 1.7 and 1.3 million ounces, respectively.

These five countries accounted for 88% of central bank gold purchases. The two largest sellers of gold were the Bank of International Settlements and the central bank of Germany selling a collective 650,000 ounces which accounted for 99% of the gross reductions in central bank gold holdings.

Excluding the International Monetary Fund, the top five central bank gold owners, as of August 2012, were the United States, Germany, Italy, France and China. These five countries held 56% of all official world gold holdings.

In calendar 2011, total gold supply rose to approximately 145 million ounces, up 3% over 2010 figures. This increase was mainly due to increased mine production and producer hedging, somewhat offset by a decrease in recycled gold. Annual gold mine output increased 2.7 million ounces to 91 million ounces, largely due to higher output in China, Canada and Mexico, offset by decreases in output from South Africa, Papua New Guinea and Indonesia.

China was the world’s biggest gold producer in 2011, with 12.2 million ounces of production, followed by Australia with an output of 8.7 million ounces of gold. The United States was the third largest producer mining 7.8 million ounces, followed by South Africa at 7.1 million ounces, Russia with 6.6 million ounces and Peru was the sixth largest producer with 5.0 million ounces of production.

Six Months to June 30, 2012

In the first six months of 2012, the average gold price rose to $1,651 from an average of $1,444 for the same period in calendar 2011. Total demand for the six months ended June 30, 2012 was 68.1 million ounces, a decrease of 5% over the 72 million ounces for the previous period ending June 30, 2011. Compared with the first half of 2011, jewelry and technology demand were down 13% and 6%, respectively. Total supply of gold through the first half of 2012 was essentially flat at 68 million ounces, down 1% over the previous period. Increased mine production was more than offset by a reduction in producer hedging and lower recycled gold supply.

ETF demand rose significantly in the first half of fiscal 2012 along with increased central bank buying. The central banks purchased 8.1 million ounces or 25% more than the 6.5 million ounces purchased in the first half of 2011. The buying was concentrated among central banks of developing countries reflecting their need for reserve diversification as they remain largely underweight in their allocation of gold compared with larger, more developed countries.

Organizational Involvement

Royal Gold is an active participant in organizations involved in promoting the mining industry and the use of gold. The Company is an associate member of the World Gold Council, and is represented by its President and Chief Executive Officer on the board of the National Mining Association; by its Vice President of Operations on the board of the Nevada and Colorado Mining Associations; and by its Chief Financial Offer and Treasurer on the board of the Northwest Mining Association.

For more information on gold, you can visit the following web sites:

Colorado Mining Association – www.coloradomining.org
Minerals Information Institute – www.mii.org
National Mining Association - www.nma.org
Nevada Mining Association - www.nevadamining.org
Northwest Mining Association – www.nwma.org
World Gold Council - www.gold.org

1. This information is derived from the World Gold Council, Thomson Reuters GFMS, CRU, and the CPM Group and represents the data and opinions of those sources. Royal Gold has not verified this data and presents this information as a representative overview of views on the gold business from gold industry sources. No assurance can be given that this data or these opinions will prove accurate. Investors are urged to reach their own conclusions regarding the gold market.