Gold bar and coin demand continues to slip!

Gold price from 2010 to 2015

Gold bar and coin demand continues to slip!

The World Gold Council just released demand and supply statistics for 2014. There are no surprises on the supply side with total mine production up 2% to 3,114 tonnes. Total Gold supply, including recycled Gold, was flat for the year at 4,278 tonnes.

Total Gold demand and supply statistics

On the demand side total jewellery demand declined by 10% to 2,153 tonnes. It looks like the lower Gold price is not stimulating jewellery demand. The statistics that affected demand most, however, was a decline of 40% in total bar and coin demand as well as continued ETF selling. Although ETF selling subsided dramatically from 880 tonnes sold in 2013 to 159 tonnes in 2014, selling continued.

Investors in Gold ETFs are selling because there is no interest or dividends when you own Gold. It is only a good investment if the Gold price rallies as happened in the aftermath of the financial crisis. The Gold price rallied from just more than $1,000 in January 2010 to $1,875 in September 2012. Most of the rally was driven by ETF buying as well as bar & coin demand.

As soon as investors became confident that Central Banks are fully committed to resolve the financial crises and that monetary stability will return, demand started to decline. At one stage SPDR, the biggest global Gold ETF, held more Gold on behalf of investors than the fourth largest Central Bank. Investors started to sell their ETFs, 880 tonnes in 2013 alone, driving the price down. The Gold price declined from $1,700 to $1,200 in a year.

There is little reason to believe that investors will start buying Gold soon as the global monetary system is not under threat, nor is inflation expected to rise. To the contrary, deflation is currently a more serious threat than inflation. On top of that, interest rate increases in the US will increase the opprtunity cost of holding Gold, traditionally a negative factor for Gold investment. To explain opportunity cost: when interest rates are very low you don’t lose much by holding Gold coins or ETFs with no yield. When rates rise however, holding investments in the safe haven of US treasuries or deposits becomes attractive.

Gold price from 2010 to 2015

Rise and fall of Gold

 

– Gerhard Lampen

Head Sanlam iTrade Online

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