Thursday August 11, 2016 24:00
(Kitco News) - Investment gold demand during the first half of the year, which drove prices up 25% on the year, was the strongest seen in more than 30 years, according to the World Gold Council’s second quarter Gold Demand Trends.
In its report released Thursday, the WGC noted that the investment market was driven by historical demand in exchange-traded products. The association noted that global ETF demand in the first half of 2016 totaled 579 tonnes, and almost matched 645 tonnes of ETF inflows seen for the entire year of 2009.
Not matter how one would slice the data, investment demand was unprecedented in the first half of the year, totaling 1,064 tonnes. In the second quarter alone, investors bought a total of 448.40 tonnes of gold, an increase of 141% compared to 2015 second-quarter demand of 186.1 tonnes. Investor demand in the first half of the year was even larger than in 2009, when investors bought gold to as a safe-haven investment during the financial crisis.
In its report the WGC said, “for the first time on record, investment has been the largest component of gold demand for two consecutive quarters. And this has been in no small part due to demand from Western investors across the spectrum, from retail to institutional and for bars, coins and ETFs”
Total gold demand from April to June increased to 1,050.20 tonnes, up 15% compared to 910.4 total demand seen in the second quarter of 2015.
In an interview with Kitco News, Juan Carlos Artigas, director of investment research at the WGC, said that investors jumped into gold, reacting in part because of growing global negative yielding bond markets and growing geopolitical uncertainty.
He added that these factors will continue to support the gold market in the long-term.
“Negative interest rates and loose monetary policy in general has created a structural shift that will have a lasting impact on gold,” he said.
Investor demand is expected to grow as the report didn’t take into account the affect effects of the U.K. referendum on whether or not to leave the European Union. Since the Brexit vote gold prices have rallied even further, hitting new two-year highs.
“In the seven days after the vote, the search index for the keyword “Gold” compiled by China’s search engine Baidu surged 44% year-on-year. And on the very day of the referendum, the index increase threefold. Similarly, Google Trends reported a more-than 500% spike in searches for the term ‘buy gold’ on the day of the referendum,” the council said.
However, the WGC noted that investment demand was the only strong sector within the gold market. According to its research, jewelry demand, central bank demand and technology demand were all weaker in the second quarter, compared to the same period last year.
Global jewelry demand, with significant weakness in India and the Middle East, dropped to 444.1 tonnes in the second quarter, down 14% compared to 513.70 tonnes seen in 2015. At the same time technical demand fell to 80.9 tonnes, down 3% compared to 83.9 tonnes in last year’s comparable quarter.
Finally, despite continued buying from Russia and China, central bank demand in the second quarter fell to 76.9 tonnes, down 40% compared to 127 tonnes bought in the second quarter of 2015.
Artigas downplayed the other weaker sectors noting that the market is still healthy because it is so diversified.
“The fact that Gold is such a diversified market is what makes it an important component in an investor’s portfolio,” he said. “When one portion of the market is down, it can be support by other sectors.”
Looking ahead, Artigas said that they are not expecting the trend in the gold market to shift anytime soon. He added that with bond yields broadly in negative territory, central banks have a long way to go to normalize interest rates.
“For some investment or insurance funds, the pool of investment choice has been significantly reduced because of monetary policy and gold is now an attractive alternative,” he said.
As for jewelry demand, Artigas said that the WGC is expecting that sector to play a bit of catch up in the second half of the year. He noted that investors because of the strong rally, investors have been hesitant to jump into the gold market.
“Once consumers get used to higher prices they will jump back into the market,” he said. “We have seen strong demand at even higher price levels so that isn’t a major deterrent for some consumers.”
Artigas added that meteorological data is highlighting a positive monsoon season in India, points to a strong harvest leading to better harvests, higher income and stronger gold demand.