Gold: key trends helping the metal keep its shine

Investors are buying gold amid uncertainty over Brexit and the US election, but high prices and changing savours may reach sales

Gold have all along thrived on bouts of uncertainty and right now markets have uncertainty in spades. The Brexit vote in Britain, the prospect of Donald Trump as US president and a raft of elections due in Europe next year have all pushed investors to ramp up their keeps of the precious metal.

That strong demand for gold seen as a safe haven in troubled periods has sent its cost rising on world markets this year. But while big investors like pension funds stock up, individuals who fancy their own little pot of gold for a rainy day have been priced out of the market.

As the World Gold Council releases its latest figures we look at key tendencies for the metal.

Global climate of uncertainty is boosting investor demand

Gold demand in the third one-quarter. Illustration: Metals Focus; World Gold Council

Investment demand for gold was up 44% in the third one-quarter on a year earlier, dominated by demand from European funds. That was a bright spot in an otherwise weak quarter for gold. Demand was down 10% overall from a year ago, as the growth in investor demand failed to offset a drop in appetite for gold among central banks, the jewellery sector and technology companies that use gold in electronics.

The solid demand among institutional investors such as pension funds and insurers builds on a strong first half to 2016. For the year to date, demand from investors is up 98%, in agreement with the World Gold Council, a hall group for the gold industry.

Photograph: Chris O’Meara/ AP

As polls tightened between Donald Trump and Hillary Clinton ahead of Tuesdays US presidential election, the gold price rose. But Alistair Hewitt, head of market intelligence at the World Gold Council, says the demand for the precious metal goes beyond worries about a political upset in the US.

Focus this week is going to be centred around the US election but its bigger than that, he says.

Uncertainty rose on the back of the vote for Brexit, and with it activity in the gold marketplace, Hewitt adds. Now investors are worrying about a series of elections in Europe next year with the Dutch, French and Germans going to the polls, and maybe the Italians too.

Given what we have seen in the UK referendum and what weve seen in the US election, there is huge uncertainty about what the outcome of these[ European elections] is going to be, says Hewitt.

One thing that is completely clear to us and surely to institutional investors is that gone are the days of the predictable status quo.

That has lifted the gold cost 20% in so far this year

The place gold price this year Photograph: Thomson Reuters

There are other factors working in golds favors, too.

Investor demand has also been helped by the fact interest rates are negative in the eurozone, Japan and elsewhere. That effectively entails people end up paying for the privilege of parking their cash with a bank. In the US and UK, official rates remain in positive province but they are not far off zero, inducing returns meagre for savers. That has constructed gold a more attractive asset and coupled with the boost from geopolitical and economic worries has ensure the spot gold cost rise more than 20% this year to $1,279 an ounce on Monday.

Pricier gold has put off retail investors

A salesperson arranges a gold necklace inside a jewellery showroom in the southern Indian city of Kochi. Photo: Sivaram V/ Reuters

Demand for coins, gold bars and jewellery have all suffered from the rise in prices, says Hewitt at World Gold Council. Both China and India, the worlds leading gold marketplaces, experienced a drop in consumer demand this one-quarter, of 22% and 28% respectively as cost savvy clients waited to buy on a dip – something many did at the start of October, he adds.

In China, ongoing economic uncertainty also contributed to a soften in sentiment towards gold, as did changing consumer behaviour.

In India, appetite has been affected by more stringent government regulations, such as a 1% excise taxes on gold jewellery manufacturing, designed to formalise the gold industry, the World Gold Council said. Added to that is the impact of a squeeze on disposable rural incomes. With consistently high prices hurting demand, one or two stores in Southern India introduced gold-plated silver jewellery.

Millennials dont have the gold bug

A tendency among millennials to expend more on going out and travelling is impacting the gold market. Photo: Sinopix/ Rex Features

In China and elsewhere changing savors are impacting the gold marketplace. Hewitt at the World Gold Council says millennials living in Chinese cities do not go for the top grade gold favoured by their parents but instead tend to look for design over quality. They also share a trend find among other young customers around the world to spend on experiences rather than objects.

The industry also faces the challenge of the rising popularity of experiential buys at the expense of physical intake, says the World Gold Councils report.

Evidence of this can be seen in the way the Chinese populace chose to celebrate the recent Golden Week national holiday. Over the last three years, the number of people choosing to travel during this vacation has grown by nearly 25%, reaching 589 million. 31% of this years tourists were millennials, born after 1980.

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