5 Key Takeaways of the Gold Market in 1H 2017
You may ask:
- Is this a good time to buy gold?
- Or, is this a good time to sell gold?
- How do I assess the gold market today?
For a start, I believe we must understand the relationship between demand, supply and prices of gold. They are interrelated. For instance, high demand and low supply of gold would lead to an increase in gold prices over the long-term. The opposite is true. It is just basic economics.
Thus, a good time to buy is usually when:
- Demand for gold is sustainable, high and on the rise.
- Prices for gold are low and depressed.
Meanwhile, a good time to sell is when:
- Supply for gold is on the rise.
- Prices for gold are incomprehensibly high.
Personally, I use data and information collected from the World Gold Council to guide my decision. The information is deemed credible. However, if you are new to the website, you may find them somewhat overwhelming. Here, I have reviewed their latest findings and would like to share five key takeaways of the gold market in 1H 2017.
#1: Russia Adds 100.6 tonnes of Gold into its holdings.
Since 1989, central banks have been net sellers of gold. It was a factor that kept gold prices suppressed in the 1990s and early 2000s. However, since 2010, their positions on gold have changed. Central banks have become net buyers of gold. This was attributed to the global financial crisis in 2008.
In 1H 2017, net purchases of gold from central banks had amounted to 176.7 tonnes. Bulk of these purchases were from the Central Bank of Russia. Over the last six months, Russia had added 100.6 tonnes of gold and thus, growing its holdings to 1,715.8 tonnes by June 2017. It is 79.1% increase from 957.8 tonnes of gold reported in December 2012.
#2: China’s Rush for Gold Continues.
In 1950, China had banned ownership of gold among its citizens. 54 years later, China has formally lifted the prohibition of gold ownership. Ever since, China became a major player and is now the biggest gold market in the world. It claimed the world’s top gold producer in 2007, established the Shanghai Gold Exchange in 2008, launched its Gold ETF and became the world’s gold consumer in 2013. Its accomplishments are simply remarkable.
In 1H 2017, China has accumulated 168.5 tonnes of gold bullion, accounting for 31.7% of global demand during the six-month period. It greatly surpassed India which added 72.7 tonnes of gold bullion in 1H 2017. The two nations have contributed to higher global bullion demand of 531.7 tonnes in 1H 2017 as compared to 478.0 tonnes in 1H 2016.
#3: Europe records all-time high in Gold ETFs
Gold prices have declined since 2013. It was attributed to massive sell-off in Gold ETFs in 2013.
Gold ETFs are exchange-traded funds that aims to track the ups and downs of gold prices. They can be bought and sold easily from various stock exchanges, mostly, in the United States and Europe. This means, buyers of Gold ETFs may consist of traders and speculators who are in the game for short-term gains. Most buyers in Asia prefer to receive physical gold bullion as they are conservative and adopt a defensive and conservative approach towards ownership of gold.
Since the end of 2016, there is a shift in the European Gold ETFs market. Asset under management (AUM) has risen sharply over the last 18 months. As of June 2017, the amount of tonnage under Europe’s Gold ETFs has grown to 977.7 tonnes, up by 71.5% from 570.2 tonnes in December 2015. The growth was attributed to higher Gold ETFs demand from Germany and the United Kingdom during the period.
#4: Mine Productions for Gold remain Flattish
In 1H 2017, global mine production was 1,557.1 tonnes. It is comparable with 1,562.3 tonnes recorded in 1H 2016. Looking ahead, the World Gold Council has revealed that it expects production to fall beginning in 2019. This is due to subdued capital expenditures on new gold mine projects over the last two years and lower forecasted gold productions of major gold companies for the financial year 2017. These gold companies include Barrick Gold Corporation, AngloGold Ashanti and Goldcorp.
#5: Gold Prices in Ringgit Up by 7.3% in 1H 2017
Gold prices had grown by 12.1%, up from US$ 1,150 an ounce in 2 January 2017 to US$ 1,289 an ounce 12 August 2017. In terms of Ringgit, gold prices had increased by 7.3%, up from RM 5,159 an ounce to RM 5,537 during the same period. The increase was lower in Ringgit Malaysia as our currency has recovered in strength marginally against the US Dollar from RM 4.49 per USD to RM 4.29 per USD presently.
So, what’s the verdict?
- Demand for gold remained sustainable in 1H 2017 as large purchases were made by the Central Bank of Russia and key markets such as China, India, Germany and the United Kingdom.
- Supply for gold remained flattish in 1H 2017 and is projected to remain subdued in line with low capital expenditures and lower production forecasts provided by major gold corporations.
- Prices of gold have grown marginally in 1H 2017. However, it is still relatively low as compared to price levels in 2011 and 2012.
Co-Founder of Goldsilvermethod.com
The #1 Online Gold & Silver Education Course in Malaysia