WGC: Highest Investment Demand for Gold Ever in H1

gold-bars-1A study reports that the first half of 2016 produced the highest investment demand for gold in history, higher even than the banner year of 1980 when the inflation-adjusted priced of gold topped $2,000.  It was the second highest first half on record for overall gold demand.

The World Gold Council’s Gold Demand Trends report covering the first half of 2016 shows that investment in gold-backed exchange traded funds climbed 16% higher than H1 of 2009 when investors, especially in the US and Europe, were scrambling to safe haven relief from the stock market crash as the Great Recession wracked the financial world.  The record performance came even as gold prices rose 25%, the best first half increase since 1980.

According to WGC, “Investment demand of 1,064 tonnes accounted for almost half of overall gold demand during the first six months of 2016. Western investors generated the bulk of this investment.”

While speculators have tended to hop in and out of the gold ETFs, the WGC report indicates the recent inflows are more likely to hold firm.  “While there is some evidence of momentum buying, investors are primarily initiating or rebuilding strategic, long term holdings and these investments are likely to be sticky.”

Jewelry demand, although “somewhat subdued  ahead of the forthcoming Presidential elections,” held on to put in the 10th consecutive quarter of demand growth in spite of lower demand from China, India, and the Middle East as prices climbed higher.

Central banks continued to be a strong supporting force for physical gold and were net buyers in the second quarter, adding 76.9 tonnes.  Year-to-date, central banks have added a net 185.1 tonnes.  This represents a 49% year-on-year decline for the quarter and 23% decline for the first half, but because of gold price increases, the value of the gold held by central banks has risen dramatically.  Russia, China, and Kazakhstan continue to be the primary drivers of central bank demand.

Juan Carlos Artigas, ‎Director of Investment Research at the WGC, cited several reasons for the strong investment demand: global political and economic uncertainty (including the Brexit shocker and US presidential election), negative interest rates, Fed hesitation on interest rate hikes, and loose monetary policies around the world..

“Pent up demand among investors who have been looking for a way back in, found the necessary catalyst,” said Artigas.


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