Rising Gold Demand is Still a Key

dt-gold-bullion-coin-march-2015By – Mike Fuljenz

Gold began both 2014 and 2015 at $1200 per ounce, so this number is beginning to resemble a magnet for gold prices.  Gold is still going up in terms of the euro and other major currencies, but the price in dollar terms has been dull, flat and boring.  However, there are some demand factors which could break gold free of its chains in 2015.

Last year, China and India accounted for 47.3% of gold demand, well ahead of the third-place nation for gold demand, the United States, at just 6.5%.  While the New York-based leveraged futures and ETF markets are still the “tail that wags the dog” in terms of gold volatility, steady or rising physical demand by the 2.5 billion people in India and China will remain the main key to gold’s long-term future.

The Top Three Nations for Gold Demand in 2014

Nation                                     2014 demand              Percent of global demand

China                                       895 metric tons           24.2%

India                                        852 metric tons           23.1%

USA                                        242 metric tons             6.5%

Demand in India and China need to rise in 2015 for gold to escape its $1150 to $1300 trading range. So far in 2015, we’ve seen rising demand in India.  Gold imports to India more than doubled in March from a year ago (125 metric tons vs. 60 tons in March, 2014). January demand rose 9% and February rose 57%.

For the fiscal quarter ending March 31, Indian gold imports rose 67% over the first quarter of 2014. Over the full 12 months to March 31, gold imports rose 36% in India. The causes include (1) easing in import restrictions by the Indian government, (2) buying in advance of the Hindu festival Akshaya Tritiya, and (3) buying for the wedding season. A fourth reason is likely the relatively low gold price in the last year.

U.S. gold demand was down in 2014 due to net liquidation of gold-backed exchange-traded funds (ETFs), but Wall Street’s traders are momentum-oriented.  If gold begins a sustained rise due to rising physical demand and short supply, then the ETF traders will jump on board, super-charging gold’s rise. It doesn’t take much increased demand (at leverage) to boost gold’s price.  In addition, China is growing richer (the Shanghai and Hong Kong stock exchanges are currently soaring).  China currently is home to 300 million citizens (out of 1.3 billion) in the middle class.  As that number grows and more Chinese investors move to gold, the gold price could take off.

New Gold Supplies are Likely to Fall This Year – Driving Prices Up

The metals consultancy firm Metals Focus anticipates new gold mine production to fall by 14% in 2015 vs. 2014. They believe that this decline in new supplies will boost gold’s price by the end of the year and in 2016. Specifically, they said: “We believe that 2015 could well represent a bottom with a clearer turning point becoming visible in 2016….From 2016 onwards, there are several plausible candidates waiting in the wings to provide the spark for a renewed gold bull market,” including “potentially ‘gold-friendly’ developments in debt, inflation, foreign exchange, commodity and equity markets and the scope for a far more malign environment for international relations to develop over the next few years.”

Mainstream financial institutions are also waking up to these new supply/demand dynamics. Citigroup, Commerzbank, Standard Chartered and Bank of America have all issued bullish reports or surveys on higher gold prices in 2016.  The Citigroup report said that gold “could regain some of its luster once the global epidemic of money-printing and currency devaluations make their way into inflation and oil prices stabilize sometime next year,” Other firms won’t predict a higher price for gold but they are willing to admit that the supply of mineable gold will shrink in the future.  In such a scenario, rising (or even flat) gold demand will push the price of gold up if the new supplies begin to shrink, especially by 14% a year.

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Anita Bowden
5 years ago

I am almost 70 years old, have a ROTH IRA and would like to purchase metals to put into it. Which custodians do
you use, where are the metals stored, and what is the cost?


Nita B.
1773 548 6311

Joe McHugh
5 years ago

Different scenarios require different solutions. If our American economy continues to stumble along on its anemic path, 5% to 10 % gold holdings in your portfolio is sufficient. If inflation starts up, increase your gold and silver holdings in the form of minted coins that don’t have to be assayed for future transactions. if We experience a complete economic collapse that would make the Great Depression look like a walk in the park on a rainy day, buy lead in the form of commonly used ammunition. If you have food, shelter, clothing and even gold, you will need to organize… Read more »

Felix M
5 years ago

Our money is worthless, politicians have put our Country in so much debt the only way out is bankruptcy. I for one
think owning some gold/silver is a great idea. China in particular is buying like crazy. Central banks are buying.
Hummm what does that tell you ? I think I want/need some some also, just in case in small denominations for
buying food and necessities if the economy goes kaput.

5 years ago

Another article trying to hype the need for people to rush out and buy gold right away before the “next big price increase” that “could be” or “might be” right around the corner. While gold and other precious metals should be a small part (no more than 3 to 5 percent) of one’s overall financial portfolio, people should NOT be concerned with minor price swings. Annual swings in mining production and demand by countries are to be expected over time and are influenced by many factors.

Benton H Marder
5 years ago

Given the present demand and supply situation for silver, Me Morgan might well, were he with us today, include silver in his definition of the true nature of money. I tend to take Mr Morgan at his word far more than the whole lot of these fiat currency gurus—much the same way that I take old Mrs Obama at her word that she was present at her grandson Barack’s birth in hospital at Mombasa over all the funny paper that says he was born in hospital in Hawaii. There are people whose word is true and some whose word is… Read more »

5 years ago

In a truly bad economy, lead will be of greater value than gold. Although I don’t call myself a “prepper” I do keep a long term supply of food, secure water supply, fuel for cooking, heating and energy, and other supplies. I call this being a good steward, as the Bible teaches, and preparing for lean times. Being able to trade skills and commodities will have value more than any precious metal, to those in need, and lead (ammunition) to keep it safe from those who would steal it. Still, I also believe that having some precious metal for exchange… Read more »

Robert Strippy
5 years ago

All paper currencies are really worthless. Real money must have a hard, intrinsic value of its own. J.P. Morgan, who knew something about money, said that only gold is real money; everything else is credit.

5 years ago

Here we go again. After the last article about gold, I went to a reputable local coin dealer who also buys gold and silver. It’s good to have contact with someone who’s trustworthy and easily accessible if one needs to sell any of those assets in an emergency situation. For me anyway, gold does not seem to be the answer. In an emergency, one could possibly be in a situation of having to haggle about its purity. The plus is that it has a lot of defined value with very little weight. Exception…..having a few ounces that’s clearly at least… Read more »

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