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BookmarkBattling an uncertain global economic environment, investors can’t seem to get enough of gold right now, and there’s little sign of that demand letting up.
That is the assessment from the World Gold Council’s Gold Demands Trends quarterly report, released on Thursday. It showed gold demand rose 21% to 1,290 tonnes in the first quarter of the year against the year-ago period, marking the second biggest quarter on record.
Driving that appetite for the precious metal were “huge” inflows into exchange-traded funds, known as ETFs, according to the council, which is the industry association of the world’s biggest gold producers. Those inflows totaled 364 tonnes for the quarter, which was the highest quarterly level since the first three months of 2009. In the same period a year ago, those inflows reached just 26 tonnes.
The SPDR Gold Trust ETF GLD, +0.54% one of the most popular ETFs that tracks gold prices, is up 20% so far this year.
It wasn’t just signs of a stressed global economy that drove investors into gold. Negative interest rates in Japan and in Europe played a part too, said the World Gold Council.
“Two major themes emerged in the first quarter of 2016. Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant driver of gold demand, helping to push prices up 17% over the course of the quarter, as ETF inflows swelled,” said Alistair Hewitt, head of market intelligence at the World Gold Council, in a statement.
Yield-bearing assets are boosted by rising interest rates. As gold yields nothing, its appeal as an investment rises when interest rates are low or even negative. Lowered expectations for more U.S. interest rate increases have weakened the dollar DXY, +0.16% this year, and gold and the dollar often trade inversely.
Gold prices GCM6, +0.31% were off $6.20, or 0.5%, to $1,269.30 an ounce on Thursday. Prices rose nearly 1% to $1,275.50 an ounce on Wednesday, spurred by a weaker dollar and bullish comments from investment banks.
Goldman Sachs GS, -0.85% raised its forecasts for gold prices, while J.P. Morgan Private Bank’s JPM, -0.06% Solita Marcelli told CNBC on Wednesday that they are recommending investors position for a “new and very long bull market for gold.”
Hewitt from the World Gold Council said looking ahead, “ongoing market uncertainty and unconventional monetary policies” will continue to drive demand by investors and central banks. The quarter showed central banks remained big buyers of the precious metal, buying up about 109 tonnes in the quarter, which was the 21st straight quarter of buying by central banks who have been diversifying away from the dollar.
While investors were piling into gold, jewelry demand saw a tough quarter owing to a weakening Chinese economy and a 42-day strike by Indian jewelers, Hewitt added. But he said they believe Indian demand has merely been postponed, with buying likely to rise for the wedding season.
Market Watch
May 13, 2016
