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LAWRIE WILLIAMS: Some positives from latest WGC report

The latest Gold Demand Trends report from the World Gold Council is now out and the full report can be downloaded from the WGC website – www.gold.org

The World Gold Council Report Highlights as noted by the WGC itself were as follows:

  • Gold jewellery demand fell in Q3. Jewellery volumes continue to languish below longer-term average levels.
  • Indian weakness was the main reason for the y-o-y decline. Tax and regulatory changes in India weighed on domestic gold demand. The new tax regime deterred consumers, as did anti-money laundering measures governing jewellery retail transactions.
  • Inflows into gold-backed ETFs stalled: holdings grew by just 18.9t. Investors continued to favour gold’s risk-hedging properties, but the greater focus was on rampaging stock markets.
  • Gold bar and coin demand growth was driven by China. Global investment in bars and coins rose 17% from relatively weak year-earlier levels. Chinese investors bought on price dips, to notch up a fourth consecutive quarter of growth.  Overall China’s consumption growth was seen as particularly strong during the quarter – up 23.1% overall.  This will largely have countered an August and September demand fall in India – see below.
  • Volumes of gold used in technology increased for the fourth consecutive quarter. Demand for memory chips continued to soar thanks to the persistent popularity of high-end smartphones.
  • Total supply fell 2% in Q3. Mine production fell 1% y-o-y in Q3, which was also the fifth consecutive quarter of net dehedging. Recycling activity (-6%) continued to normalise after jumping in 2016

On the face of things the latest WGC report looks as if it might make for dismal reading for gold enthusiasts, but it should be noted that the biggest decline compared with the year ago figures was in volumes of gold purchases by global gold ETFs – but these were still positive.  It should perhaps be remembered that when gold suffered its huge price declines from 2011, which only started to turn around in 2015, there were huge withdrawals from the gold ETFs, in part countered by strong Chinese demand at the time, otherwise gold’s decline would undoubtedly have been even greater than it was.

There was also a sharp fall in Q3 in Indian jewellery demand, but again this was the first quarter following the country’s new GST imposition, and tends to be a weak part of the year for Indian jewellery demand anyway being a hiatus period ahead of the big Diwali festival and the start of the peak season for Hindu weddings.  Q4 figures will thus be a far better indicator of the true Indian gold demand position.  Indian gold imports have slipped quite dramatically in August and September, but as we commented in our recent article on Indian gold demand (See:  Indian gold imports heading for 900 tonnes in 2017 – maybe) they are still running comfortably ahead of a year ago – indeed gold imports in the first half of the year had already exceeded those for the whole of 2016.  Once again we will have to wait for Q4 figures to see the full picture.

On the positive side, technological demand was up and this is a sector that should keep on growing, while global gold supply was down, albeit only by a couple of percent.  There is increasing evidence that peak gold output is already with us and that new mined supply may be beginning to diminish, although very slowly at the moment.

The WGC also commented that, in its opinion the weakish demand seen for the gold ETFs was due to the ‘rampaging’ equities markets, but there does seem to be evidence that these may be peaking.  There are ever increasing warnings about an equities markets ‘bubble’ having developed with a subsequent meltdown due.  One doubts equities can keep rising indefinitely and if there is a collapse, which may well start to happen sooner rather than later, then gold may again come into demand as the main wealth protector.

This may all be wishful thinking on behalf of the writer, who remains gold positive, although he is not in the $5,000 to $10,000 brigade except perhaps in the very long term, but there are some positive signs out there and, in the writer’s opinion, gold supporters should not lose heart.

09 Nov 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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