The World Gold Council’s semi annual Gold Demand Trends report is always a much anticipated publication in the world of the yellow metal. It is considered by authorities to be the foremost resource in the industry for data on gold demand. This year’s first half report did not disappoint. Contrary to what you may hear in the media from time to time, gold demand continues to grow in most important categories. In several critical ones, it set new records and near records. Read on to see why this continues to offer tremendous support for your gold retirement holdings and future gold prices.
Gold Enjoys Second Highest First Half Demand On Record
Gold is basking in the near record high for the first half total demand. Thanks to the Q2 continued growth of 15%, it achieved the second greatest first half in the gold data records. This amounted to a total demand for gold in the first half of 2,335 tons. ETFs were the star performer with an impressive +579 tons added. The second highest first half on record occurred even in light of weak jewelry demand that struggled in a scenario of substantially higher prices. Gold rose over 24% in terms of U.S. dollars, and even higher in other currencies as this chart shows.
Record Investment Demand Breaks Great Recession 2009 Prior Highs
Investment demand is the category that really put overall gold demand over the top in the first half of the year. The old record had been set during the panic and fear that pervaded global markets in the low points of the Great Recession in 2009. For 2016 first half, the total investment demand amounted to 1,064 tons. This represented a 16% greater amount that in 2009 H1. In fact investment has now been the biggest single part of demand for gold over two consecutive quarters for the first time in recorded history.
Nearly half of all the aggregate gold demand in the first half of 2016 came from this investment demand. A significant trend was the increase in interest from Western investors. The lion’s share of the demand came from the West instead of the East. Investors from all parts of the spectrum contributed to this encouraging sign. This ranged from institutional investors to retail investors buying into such diverse products as gold backed ETFs, coins, and bars.
A variety of reasons propelled the western investors towards the safety of gold for the first six months of 2016. This began in the first quarter and only increased during the second quarter. The monetary policy that global central banks have pursued is a significant factor. The negative interest rates promoted by the European Central Bank, Swiss National Bank, and Bank of Japan sent investors looking for better opportunities. At the same time, analysts and investors began to come to grips with the idea that the U.S. interest rate hikes would be delayed. These combined at the same time as increasing sentiment that the several year downtrend in gold had reached its end.
Uncertainty only added to these motivations. Geopolitical concerns that ran the gamut from political to economic events encouraged people to find the higher quality, tangible, and liquid asset of gold. The June 23rd British Referendum that built up to a stunning Brexit leave vote brought the period to a close. At the same time, the contentious and uncertain U.S. election campaign was already in full swing. Italy’s banking crisis became more evident during this period as well. These three reasons gave plenty of motivations for investors to move into gold.
The bigger smart money investors were not the only ones crowding into the safe haven appeal of the yellow metal. Small scale investors have also shown their strength and interest in a number of Western countries. American gold Eagle coins witnessed an 84% boost in demand. In Britain, the Royal Mint enjoyed a dramatic increase in its profits. The Mint announced that its products jumped in demand in the wake of the Brexit referendum. It’s new Signature Gold program that permitted investors to buy partial gold bar holdings online proved to be extremely popular. Throughout the other countries in Europe, smaller investors snapped up coins and ETFs wherever they could.
ETF’s Outshine All Other Gold Sectors
The chart below gives you an idea of just how powerful the ETF demand for gold turned out to be in the first half of 2016. It was especially impressive when compared to the prior three years.
Gold backed ETFs outperformed every other single vehicle in the gold investment category. The demand for these ETFs approached 580 tons, higher than even the 458 tons last seen in 2009 first half in one quarter alone. These exchange traded funds have grown in appeal beyond Western nations. Investors from China increased their gold investments in such products to 24.4 tons through the conclusion of June. This represented a nearly four times gain from the end of 2016. It will be interesting to see how well this demand continues to perform when profit taking sets in at some point.
In any case, the shift towards gold ETFs is real and impressive, especially with the bigger Western investors. Q3’s data is likely to pick up much of the post Brexit ETF demand, since the vote happened in the last eight days of Q2. The data so far shows that investor demand for gold after the Brexit uncertainty has been global. On the referendum day, Google Trends witnessed an over 500% surge in Internet users searching for the phrase “Buy Gold.” Baidu, China’s search engine, also experienced a 44% increase in the keyword “Gold” search for the seven days following the referendum vote (versus the year before).
Gold Supply First Half Increase Lowest In Nearly A Decade
It is also interesting to note that as gold demand was making all time and near time highs, supplies were not massively increasing. The supply for the first half of 2016 grew only 1% compared to the same period the year before. This represented the slowest growth rate in gold supplies for a first half in eight years. It should not come as a surprise to you that gold prices are doing so very well in light of the impressive demand and constrained supply for the first half.
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