Gold has long thrived on bouts of uncertainty and right now markets have uncertainty in spades. The Brexit vote in Britain, the prospect of Donald Trump as US president and a raft of elections due in Europe next year have all pushed investors to ramp up their holdings of the precious metal.
That strong demand for gold – seen as a safe haven in troubled times – has sent its price soaring on world markets this year. But while big investors like pension funds stock up, individuals who fancy their own little pot of gold for a rainy day have been priced out of the market.
As the World Gold Council releases its latest figures we look at key trends for the metal.
Global climate of uncertainty is boosting investor demand
Investment demand for gold was up 44% in the third quarter on a year earlier, dominated by demand from European funds. That was a bright spot in an otherwise weak quarter for gold. Demand was down 10% overall from a year ago, as the growth in investor demand failed to offset a drop in appetite for gold among central banks, the jewellery sector and technology companies that use gold in electronics.
The solid demand among institutional investors such as pension funds and insurers builds on a strong first half to 2016. For the year to date, demand from investors is up 98%, according to the World Gold Council, a lobby group for the gold industry.
As polls tightened between Donald Trump and Hillary Clinton ahead of Tuesday’s US presidential election, the gold price rose. But Alistair Hewitt, head of market intelligence at the World Gold Council, says the demand for the precious metal goes beyond worries about a political upset in the US.
“Focus this week is going to be centred around the US election but it’s bigger than that,” he says.
Uncertainty rose on the back of the vote for Brexit, and with it activity in the gold market, Hewitt adds. Now investors are worrying about a series of elections in Europe next year with the Dutch, French and Germans going to the polls, and possibly the Italians too.
“Given what we have seen in the UK referendum and what we’ve seen in the US election, there is huge uncertainty about what the outcome of these [European elections] is going to be,” says Hewitt.
“One thing that is completely clear to us and certainly to institutional investors is that gone are the days of the predictable status quo.”
That has lifted the gold price 20% so far this year
There are other factors working in gold’s favour, too.
Investor demand has also been helped by the fact interest rates are negative in the eurozone, Japan and elsewhere. That effectively means people end up paying for the privilege of parking their cash with a bank. In the US and UK, official rates remain in positive territory but they are not far off zero, making returns meagre for savers. That has made gold a more attractive asset and coupled with the boost from geopolitical and economic worries has seen the spot gold price rise more than 20% this year to $1,279 an ounce on Monday.
Pricier gold has put off retail investors
Demand for coins, gold bars and jewellery have all suffered from the rise in prices, says Hewitt at World Gold Council. Both China and India, the world’s leading gold markets, experienced a drop in consumer demand this quarter, of 22% and 28% respectively as price savvy customers waited to buy on a dip - something many did at the start of October, he adds.
In China, ongoing economic uncertainty also contributed to a softening in sentiment towards gold, as did changing consumer behaviour.
In India, appetite has been affected by more stringent government regulations, such as a 1% excise duty on gold jewellery manufacturing, designed to formalise the gold industry, the World Gold Council said. Added to that is the impact of a squeeze on disposable rural incomes. With consistently high prices hurting demand, one or two stores in Southern India introduced gold-plated silver jewellery.
Millennials don’t have the gold bug
In China and elsewhere changing tastes are impacting the gold market. Hewitt at the World Gold Council says millennials living in Chinese cities do not go for the top grade gold favoured by their parents but instead tend to look for design over quality. They also share a trend seen among other young consumers around the world to spend on experiences rather than objects.
“The industry also faces the challenge of the rising popularity of ‘experiential’ purchases at the expense of physical consumption,” says the World Gold Council’s report.
“Evidence of this can be seen in the way the Chinese populace chose to celebrate the recent Golden Week national holiday. Over the last three years, the number of people choosing to travel during this holiday has grown by nearly 25%, reaching 589million. 31% of this year’s tourists were millennials, born after 1980.”
Gold teeth are out of fashion too
Demand from dentists has been on a declining trend and gold used in dentistry fell another 6% year-on-year in the third quarter. “Demand is expected to fade further as the industry and consumers turn to ceramic materials for cosmetic reasons,” says the World Gold Council report.
Recycling is all the rage
With the gold price high, people are being encouraged to dig around their cupboards and take old trinkets and jewellery into services that buy gold from consumers for recycling.
That trend was particularly prevalent in India, where consumers cashed in their holdings, swelling the amount of recycled gold in the region to its highest level for almost four years. Volumes of gold recycling have also “ballooned” in recent quarters in China, the World Gold Council says.
