Gold ETF Demand Tanks!

Gold ETF Demand Tanks!

ETF Demand

The World Gold Council report showed investment demand for Gold took a beating in the second quarter of 2017, down 34% from Q2 2016. Although demand for Gold bars and coins increased by 13%, mostly driven by India and China, Gold-backed ETF demand had a 76% fall, albeit from a very high base in 2016.

The first half of 2016 saw huge inflows into ETFs and from this high base it is not surprising that demand is normalising. There were still inflows in most regions, but China saw outflows of about 9 tonnes. In Europe Gold ETF holdings reached an all-time high.

Central Banks

Central Bank net purchases picked up in Q2 to 94 tonnes. The turnaround in the Turkish economy contributed to investor buying ETFs and the Central Bank bought 21 tonnes of Gold and Russia continued to add Gold.

Jewellery Demand

Global jewellery demand was up slightly, driven by a 41% increase in demand from India.

Production

Despite mine production staying flat in Q2, total Gold supply declined because of a decline in recycled Gold supply.

Capital expenditure remained very low, prompting the World Gold Council to predict that mining production will slow from 2019.

Conclusion

After frantic ETF buying in H1 2016, demand is now normalising. Because there is no interest or dividend on Gold holdings, investors get restless when there is no capital appreciation. Having a small portion of your investments in a Gold ETF is a good hedge against global turmoil and calamities. In the current environment there is little other reason to hold Gold as an investment.

– Gerhard Lampen

Head Sanlam iTrade

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