The West continues to buy paper gold while the East buys physical according to World Gold Council

7 Aug 2017

by Kenneth Schortgen, The Daily Economist:

On Aug. 3 the World Gold Council published a report for the second quarter (Q2) on overall sales of the precious metal.  And in this report the WGC found that although there was a rise in gold buying in the United States and Europe, the majority of their purchases were done in the ETF and paper markets.

Simultaneously, gold buying in India and China rose over the first quarter (Q1), and their primary buying was done in the physical gold markets.

Global gold demand was 953.4 tonnes in the second quarter, which was 10% lower than the same time last year. Demand in the first half fell 14% year-on-year to 2003.8 tonnes. The World Gold Council stressed that the declines in demand reflect a slowdown after a surge in ETF demand during the first half of 2016.

Gold-backed ETFs enjoyed a 56 tonne increase in assets under management in the quarter, with holdings of ETFs reaching 2,313 tonnes in June – the highest level since October last year. Holdings in the first half rose by roughly 168 tonnes.

Second quarter investment in the U.S. and Europe was 30.9 tonnes and 35.2 tonnes, respectively, though European-listed ETFs accounted for 76% of net global inflows in the first half. Assets under management in European-listed funds hit a record high of 977.7 tonnes at the end of the second quarter. However, Chinese investors turned cold on gold in the quarter:

Chinese demand for bars and coins was strong in the second quarter, rising 56% from the same time last year. Here’s a little more detail from the World Gold Council:

This was a solid quarter, broadly in line with the three- and five-year average quarterly demand of 62.9t and 69.5t respectively. But when we look at recent trends it is clear that Chinese retail investment has slowed down a little. China saw exceptionally strong demand in the final quarter of 2016 and the first quarter of 2017, with over 100t bought in each. A depreciating currency and fears over State-imposed restrictions on the property markets in Tier 1 and 2 cities fuelled demand for gold as a high-quality liquid asset. So far in 2017, however, the yuan has stabilised and the property market regulations have not had the impact many investors had feared.

Indian coin and bar demand rose 46% year-on-year in the second quarter, while demand in Turkey rose to the highest level since 2013. Indian jewelry demand rose 41% year-on-year in the second quarter:

India drove global Q2 jewellery demand growth almost single-handedly. Demand shot up to 126.7t compared with just 89.8t in Q2 2016. The strong recovery had been widely expected after exceptional import figures were reported, hitting an all-time high of 104.6t in May as the market stockpiled gold ahead of the June GST rate announcement. Expecting a punitive GST rate, jewellers and consumers alike crammed their purchases into the first two months of the quarter, slowing down once the government confirmed that a 3% rate would be applied. – Barrons

As usual, most Americans do not truly understand diversification in their portfolios, as their buying of gold through and ETF means that they have only purchased another dollar based security, and have only a promise of access to real gold.  However over in Asia, diversification is much more acute since many investors there are buying assets in opposition to their own sovereign currencies, such as with physical gold, cryptocurrencies, and overseas real estate.

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