ANALYSIS: Is the golden opportunity still alive?

Added 12th August 2016

The first half of 2016 was the first time investment has been the largest component of gold demand for two consecutive quarters. Should this leave gold bugs feeling vindicated or afraid?

ANALYSIS: Is the golden opportunity still alive?

The price of the yellow metal is up almost 31% in sterling terms so far this year - in dollars the rise is a more modest 21%. The surge comes after an extended bear market that has been in place since March 2013 and has, the World Gold Council showed on Thursday, been clearly driven by investment demand.

“Record H1 demand of 1,063.9t is 16% higher than the previous H1 high from 2009, when the market was in the midst of the global financial crisis,” it said in its Q2 2016, Gold Demand Trends report.

And, it added the growth came largely from Western investors across the spectrum, from retail to institutional and for bars, coins and ETFs and was driven by a number of factors that “turned the attention of the western investor community towards gold in the opening months of the year…and brought it even more sharply into focus in the second quarter”.

These factors included the ongoing focus on central bank moves globally, the introduction of negative interest rate policies (NIRP) in Japan and Europe, expectations of a slowdown in the rate of interest rate hikes in the US and, most recently worries over the UK’s decision to leave the European Union.

As can be seen by the graph below, ETF demand for the metal was absent during the metal’s fall from its highs and, in fact was a source of net redemptions, but since the start of 2016 has mopped up significant tonnage

 Source: WGC and Portfolio Adviser

With uncertainty still rife across the globe, bond yields at record lows and many equity valuations looking stretched, the question for investors now is, if you are not invested yet have you missed the run, or is there more to come?

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.


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