The World Gold Council’s Gold Demand Trends Q1 2017 report released this week showed gold demand fell 18% compared to the period last year.
The WGC pointed out, however, that the figures were skewed by the “strongest ever first quarter in 2016.” WGC noted that demand was robust and healthy in the first quarter of this year despite the gloomy data comparison.
Overall demand was at 1,034 tonnes in the first quarter of this year, compared to 1,262 tonnes for the period last year.
“A key reason why demand doesn’t look as strong in Q1 2017 is because demand in Q1 2016 was exceptionally high, especially on the investment side. Just to put things into context, ETF flows were the second largest on record. Anything you compare to such a high figure is going to look small,” said Juan Carlos Artigas, director of investment research at the WGC.
“But when you look at it in context, Q1 2017 was a robust quarter, just not as remarkable as the first quarter of 2016. There was good demand coming from the investment market in Q1 of this year, from both bars and coins as well as ETFs. In particular, European ETFs had strong flows,” Artigas explained.
“Investors are buying gold as a way to manage their portfolio risk,” Artigas noted. “This year, there were uncertainly around elections, the rise of more nationalists parties, putting into question whether the euro will remain a currency for the long-run. And for Britain, even though the decision to leave the EU happened last year, it is not until now that negations are really starting.”
One factor contributing to the gold demand slump in the first quarter was a decline in central bank purchases, which slid to a nearly six-year low. Official bank gold purchases worldwide only totaled 76 tonnes for the quarter.
Russia and Kazakhstan were buyers, but China was notably absent from the gold market.
“China’s purchasing program was on pause during the quarter as its foreign exchange reserves remained under pressure,” the WGC report said.
Although central bank were not buying, neither were they selling. “Central banks bought less gold but still show little appetite to sell…Net sales remain at trivial levels,” the report said.
Artigas noted that American investors tend to look at gold only from a U.S. vantage point and forget that it is a global asset. “Oftentimes investors in the U.S. say that ‘what matters for gold is what the Fed and dollar are doing.’
But, in reality gold is a global market. And European investors use gold often as a way to manage risk and protect assets and obtain returns. And in the first quarter we saw just that — strong demand coming from Europe. It is not just about the U.S., it matters what happens in Europe, and it matters what happens in Asia,” he said.
Despite the disappointing figures for gold from the first quarter, Artigas remains upbeat on the gold outlook.
“As economies in the West and Asia start to recover and grow more, it will put more money in people’s pockets, which means more consumption of jewelry and savings, some of which may go to gold,” he said.
Dutch bank ABN AMRO’s Georgette Boele, coordinator of FX and precious metals strategy, expects range-trading for a while with a modest rise for gold later in the year.
“We expect range-trading in the near-term and a modest rise later in the year,” Boele wrote in her Precious Metals Watch this week.
“The modest rise in US real yields and the US dollar we expect in the coming months will likely weigh on the gold prices. However, we don’t expect an aggressive sell-off in gold prices,” she said.
“It is likely that the net-long speculative US dollar positions will hang over the market, and investors will probably use any rally in the US dollar as an opportunity to unwind dollar longs. On the other hand, investors will probably buy gold on dips,” Boele said.
Boele said she expects the US dollar to face pressure later in the year, which could boost gold. She calculates that expected interest rate hikes will already be priced in to the dollar and investors will start to take profits off the table. For the coming year, Boele anticipates the dollar to weaken “across the board” because of declining real yields “and a deterioration in the US growth inflation mix.”
ABN AMRO’s forecast for gold is $1,300 by the end of 2017 and $1,400 for 2018.
Mike Fuljenz is a member of the Newsmax Finance Brain Trust. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report. Discover more by Clicking Here Now.
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