What Is Taking The Shine Off Gold?
More evidence that for all the talk about a commodity boom, gold continues miss out - the price, while it is up just over 10% in the year so far, is not responding to rising demand for the metal.
Gold futures are trading around $US1284 an ounce - up from $US1173 at the start of the year, but down from the peak of $US1353 an ounce in September.
Most of the price moments can be linked to the movement in the value of the US dollar, weak investment demand and the impact of government policy in India.
Figures out last night show the metal had its weakest third-quarter global demand since 2009 as inflows of the metal into the gold-backed exchange-traded funds (ETFs) slowed, and tax and regulatory changes hurt demand from India.
The World Gold Council said worldwide gold demand fell 9% in the third quarter of this year from the same quarter a year ago, to total 915 tonnes.
Global investment demand for the metal dropped by 28% year on year to 241.2 tonnes, following a sharp slowdown in ETF inflows.
The report says that while ETFs saw positive inflows of 18.9 tonnes, that was down 87% from the 144.3 metric-tonnes influx seen in the third quarter of 2016.
That strong performance in 2016 was driven by the surprise result of the Brexit referendum and in the anticipation of the US elections, which boosted demand from ETFs.
But a year later and demand was much weaker off the back of the strengthening US dollar, and higher interest rates, which offset fears from the tensions around North Korea.
Year-on-year global bar and coin demand jumped 17% to 222.3 tonnes despite a 23% slide in India’s bar and coin demand. China’s demand jumped by 57%, producing the overall increase.
Globally, official gold reserves climbed by 25% (111 tonnes) in the third quarter year on year, with Russia, Turkey and Kazakhstan “remaining dominant buyers, accounting for over 90% of the total,” according to the WGC report.
Meanwhile, a recovery for Indian jewellery demand in the first half of the year was “derailed” in the third quarter by “regulatory intervention,” with the introduction of the 3% Goods and Services Tax at the beginning of July.
Gold demand for jewellery from India sank 25% for the third quarter to 114.9 tonnes, compared to the same time a year earlier, while Chinese gold jewellery demand climbed by 13% year on year to 159.3 tonnes. Despite that stronger demand from Chinese buyers worldwide jewellery demand fell 3% to 478.7 tonnes.
The World Gold Council said Indian gold demand was pulled forward into the second quarter as consumers anticipated the GST’s start in the third quarter.
Indian gold consumers made their gold purchases in the second quarter in anticipation of the GST, leaving demand “a little flat” at the beginning of July, the WGC report said.
The jewellery trade also struggled with the new tax system, with “smaller, unorganized retailers facing difficulties, though large, organized retailers were better equipped to deal with the transition to the new tax system.
Looking further ahead, the WGC says the GST “represents a radical step forward for India’s economy,” so while it “could present short-term challenges to the gold industry, we believe it will boost the economy and make the gold industry more transparent to the benefit of gold buyers.”
“In the US, gold saw its strongest third-quarter jewellery demand since the third quarter of 2012, and year-to-date domestic jewellery demand rose 4% to a seven-year high of 76.8 tonnes
On the production side after a strong first half, mine production fell by just over 1% year on year to 841 tonnes in the September quarter. But on a year to date basis, global production hit 2,420 tonnes at the end of September, the highest on record.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.