Political uncertainty triggers investor gold rush
INVESTORS bought record amounts of gold in the first half as concerns over Britain’s vote on EU membership and US presidential elections drove demand for a haven.
Slumping yields also reduced appetite for alternatives such as stocks and bonds.
Purchases of 1 064 tons smashed a 2009 record by 16 percent, the World Gold Council said yesterday. In the second quarter alone, investor demand more than doubled to 448.4 tons from a year earlier. Higher prices hurt jewellery demand and increased supply from hedging and scrap.
Political risks
Gold prices jumped 25 percent in the first half of the year, the most in four decades, even as consumer demand slowed in India and China, the biggest buyers. Investors piled into bullion-backed exchange-traded funds (ETFs) as political risks including Brexit and a Donald Trump candidacy for the US election became realities.
Negative rates on sovereign bonds of many nations also erased their advantage over gold’s zero yield.
“The increase in investment demand helped make gold one of the best performing assets of the year, comfortably outperforming many equity indices, bonds, commodities and real estate,” said Alistair Hewitt, the head of market intelligence at the London-based council. “Brexit and the looming US elections were key factors creating uncertainty.”
While investor interest expanded, demand from other buyers was muted as prices rose. Holdings in ETFs backed by gold jumped 34 percent to 1 952.5 tons in the half, data compiled by Bloomberg show. At the same time total bar and coin demand was little changed, the council said.
The rise in prices also hurt demand from top consuming countries. In India, consumer demand dropped 18 percent in the second quarter from a year earlier, while in China it sank 14 percent, the figures showed.
“There has been an adverse effect on some large, price-sensitive jewellery markets, notably India and China,” Hewitt said.
Even buying here might accelerate later this year, with India’s wedding season expected to unleash pent-up demand, the council said. Still, it has cut full-year forecasts for Indian consumption to between 750 and 850 tons, and for Chinese between 850 and 950 tons. In May, it estimated 850 to 950 tons in India and 900 to 1 000 tons in China.
Demand from central banks slowed for a third consecutive quarter, dropping 40 percent year on year to 76.9 tons.
They might buy 400 to 500 tons this year, down from 566.7 tons last year.
Producer hedging
Gold purchases smashed the 2009 record by this much
On the supply side, higher prices increased producer hedging and pulled in scrap metal for recycling. The council said scrap rose 23 percent to 327.7 tons in the quarter.
Producer hedging rose to 30 tons after being a net source of demand in the same period a year earlier. Total supply rose 10 percent to 1 144.6 tons.
The council expected global gold demand of 4 200 to 4 300 tons for the year, from 4 218.1 tons last year. – Bloomberg