The Germans: Now the world’s biggest gold buyers

By Frank Holmes – CEO and Chief Investment Officer, U.S. Global Investors

Germans Have Quietly Become the World’s Biggest Buyers of Gold

When I talk about Indians’ well-known affinity for gold, I tend to focus on Diwali and the wedding season late in the year. Giving gifts of beautiful gold jewelry during these festivals is considered auspicious in India, and historically we’ve been able to count on prices being supported by increased demand.

Another holiday that triggers gold’s Love Trade is Dussehra, which fell on September 30 this year. Thanks to Dussehra, India’s gold imports rose an incredible 31 percent in September compared to the same month last year, according to GFMS data. The country brought in 48 metric tons, equivalent to $2 billion at today’s prices.

As I’ve shared with you many times before, Indians have long valued gold not only for its beauty and durability but also as financial security. Indian households have the largest private gold holdings in the world, standing at an estimated 24,000 metric tons. That figure surpasses the combined official gold reserves of the United States, Germany, Italy, France, China and Russia.

 

A New Global Leader in Gold Investing?

But as attracted to gold as Indians are, they weren’t the world’s biggest investors in the yellow metal last year, and neither were the Chinese. According to a new report from the World Gold Council (WGC)that title shifted hands to Germany in 2016, with investors there ploughing as much as $8 billion into gold coins, bars and exchange-traded commodities (ETCs). This set a new annual record for the European country.

Gold investment demand in Germany Hit a New High in 2016
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Germany’s rise to become the world leader in gold investing is a compelling story that’s quietly been developing for the past 10 years. Before 2008, Germans’ investment in physical gold barely registered on anyone’s radar, with average annual demand at 17 metrics tons. The country’s first gold-backed ETC didn’t even appear on the market until 2007.

But then the financial crisis struck, setting off a series of events that ultimately pushed many Germans into seeking a more reliable store of value.

“While the world fretted about Lehman Brothers, German investors worried about the state of their own banking system,” the WGC writes. “Landesbanks, the previously stable banking partners of corporate Germany, looked wobbly. People feared for their savings.”

To stanch the bleeding, the European Central Bank (ECB) slashed interest rates. Banks began charging customers to hold their cash, and yields on German bunds dropped into negative territory.

All of this had the effect of rekindling German investors’ interest in gold. As I’ve explained before, gold prices have historically surged in that country’s currency when real government bond yields turned subzero. What we saw in Germany was no exception.

gold price jumped when German government bond yield turned negative
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Weakening Faith in Paper

As the WGC points out, Germans are acutely aware that fiat currencies can become unstable and lose massive amounts of value. In the 1920s, the German mark dipped so low, a wheelbarrow overflowing with marks wasn’t enough to buy a single loaf of bread. In the past 100 years, the country has gone through eight separate currencies.

It’s little wonder, then, that a 2016 survey found that 42 percent of Germans trust gold more than they do traditional money.

This is where Germans and Indians agree. The latter group’s faith in the banking system has similarly been eroded over the years by regime changes and corruption, and gold has been seen as real money.

It’s not just individual German investors who harbor a strong faith in gold. The Deutsche Bundesbank, Germany’s central bank, spent the past four years repatriating 674 metric tons of Cold War-era gold from New York and Paris. The operation, one of the largest and most expensive of its kind, concluded in August. Today the central bank has the second largest gold reserves in the world, following the U.S. Federal Reserve.

Room for Further Growth

With Germans’ demand for gold investment products having already reached epic proportions, what can we expect next? Will interest continue to grow, or will it recede?

Analysts with the WGC believe there is room for further growth, citing a survey that shows latent demand in Germany holding strong. Impressively, 59 percent agreed that “gold will never lose its value in the long-term.” That’s a huge number.

Regardless of whether or not investment expands in Germany, this episode shows that gold is still seen as an exceptional store of value, and trusted even more so than traditional fiat money. For gold investors, that’s good news going forward.

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World Gold Council’s Latest Gold Demand Trends Report

The World Gold Council (WGC)’s quarterly Gold Demand Trends report is always well worth analysing as it contains some excellent statistical research on global gold supply and demand supplied by London based precious metals consultancy, Metals Focus.  One may not agree with all their data, but overall it is among the most comprehensive available to the gold market analyst.  Here follows the WGC’s own release on the latest report, published today, and links to enable readers to access the full data set:

Gold demand rises 2% in 2016 as investment surges

Global gold demand rose 2% in 2016 to reach 4,309 tonnes (t), the highest level since 2013, according to the World Gold Council’s latest Gold Demand Trends report. This was largely driven by inflows into gold-backed Exchange Traded Funds (ETFs) of 532t, the second-highest year on record, as investors responded to concerns over future monetary policy, geopolitical uncertainty and negative interest rates.

Continued global economic and political uncertainty, most notably Brexit, the US election and currency weakness in China, helped to boost overall investment demand by 70%, to a four-year high of 1,561t.   The price dip in November led to a strong recovery in the bar and coin market in the final quarter of 2016, although this didn’t offset weak demand in the first three quarters; annual demand reached 1,029t, down 2% year-on-year.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented: “2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold. Retail investors – having been subdued for most of the year – responded quickly to the price fall in Q4, a fact reflected by a surge in demand in the physical market. With an equally uncertain political and economic environment likely in 2017, we expect investment demand to remain buoyant.”

While overall investment demand rose sharply, it was counterbalanced by declines in both jewellery, a 15% fall in 2016 to 2,042t, and central bank purchases. Central banks faced a challenging backdrop, with increased pressure on foreign exchange reserves resulting in demand falling by 33% to 384t for the year. Despite this, 2016 was the seventh consecutive year of net purchases by central banks.

In spite of resilient consumer demand in the fourth quarter of 2016, the two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21% and 7% respectively. In China, jewellery demand was dampened due to a high gold price throughout much of the year, coupled with constrained levels of supply in Q4, owing to a tightening of currency controls in the country.

Indian demand also faced a raft of challenges throughout the year, including regulatory changes, culminating in the surprise demonetisation policy, which severely hampered demand in both the jewellery and retail investment sectors.

Alistair Hewitt added: “The Indian market faces a challenging time in 2017. We anticipate many of the headwinds that affected demand in 2016 to continue into this year, but we are confident that the Government’s move towards a more transparent gold market will ensure that gold remains an important asset class for millions of people in India.”

Total supply reached 4,571t in 2016, an increase of 5% compared with 2015. Growth in the sector was supported by net producer hedging, which doubled in 2016, as gold producers saw an opportunity to secure cashflow at higher prices. It was also supported by high levels of recycling in Europe and the Middle East, driven by weak currencies and a high gold price. Mine production remained virtually unchanged from 2015 as a result of industry cost-cutting schemes, however, higher gold prices and lower costs have seen a renewed interest in exploration and increased project development is likely in the years ahead.

The key findings included in the Gold Demand Trends Full Year 2016 report are as follows:

Full year 2016 figures:

  • Overall demand for FY 2016 was 4,309t, up 2% compared with 4,216t in 2015
  • Total consumer demand for FY 2016 fell by 11% to 3,071t, from 3,436t in 2015
  • Total investment demand grew by 70% to 1,561t in FY 2016 from 919t in 2015
  • Global jewellery demand was down 15% at 2,042t, compared with 2,389t in 2015
  • Central bank demand was 384t, down 33% compared with 577t in 2015
  • Demand in the technology sector decreased by 3% to 322t from 332t in 2015
  • Total supply grew by 5% to 4,571t this year from 4,363t during 2015. This was largely driven by recycling, which increased 17% to 1,309t from 1,117t in 2015.

 Q4 2016 figures:

  • Overall demand was 994t, a fall of 11% compared with 1,123t in Q4 2015
  • Total consumer demand increased by 5% to 989t from 940t in Q4 2015
  • Total investment demand fell 21% to 174t this quarter compared with 220t last year
  • Global jewellery demand was down 5% at 622t, compared with 653t in Q4 2015
  • Central bank demand reached 114t this quarter, a fall of 32% from 169t in Q4 2015
  • Demand in the technology sector increased by 3% year-on-year, up to 84t compared with 82t during Q4 2015
  • Total supply fell by 4% to 1,036t this quarter from 1,081t during Q4 2015.  
  • Recycling increased by 5% to 250t during the fourth quarter, from 239t during Q4 last year.

The Gold Demand Trends Full Year 2016 report, which includes comprehensive data provided by Metals Focus, can be viewed at http://www.gold.org/supply-and-demand/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting tool http://www.gold.org/supply-and-demand/interactive-gold-market-charting.

SGE gold withdrawals pick up a little – but still way down on a year ago

The latest announcement on gold withdrawals out of the Shanghai Gold Exchange (SGE) for August saw an increase on July withdrawals, but they remain hugely (45.5%) below those for August last year, although admittedly July, August and September 2015 saw exceptionally high levels.  If we compare the August figure with 2014 it was still 10.8% down.  Year to end-August withdrawals from the Exchange were a massive 28.6% down on the same period of 2015, but only 1% down on 2014 levels when the full year total was a little over 2,100 tonnes, although the current trend suggests that this level may not be reached this year.

Some equate SGE withdrawal figures as equivalent to total Chinese gold demand, although others dispute this suggesting there is a degree of double counting involved.  But be this as it may we do have a pretty good handle on Chinese gold imports and together with China’s own gold output of around 450 tonnes a year, these come out as far closer to the SGE withdrawals figure than Chinese ‘consumption’ figures as estimated by the major precious metals consultancies.  The main difference is interpretation as to what is actually considered as ‘consumption’ which, for the mainstream analysts is a fairly specific universe which ignores gold imported for use by the financial sector.  To us this is till gold flowing into the Chinese mainland, and not coming out again, so should be incorporated in overall demand figures.

To put all this into perspective, China gold follower Koos Jansen, writing on www.bullionstar.com, last year estimated Chinese gold imports, mostly as reported by Switzerland, the UK, Australia, the U.S., Canada and Hong Kong, at 1,575 tonnes to which should be added China’s domestic gold production of around 450 tonnes and a degree of scrap at an estimated 225 tonnes – so an overall total of 2,250 tonnes.  In 2015 SGE withdrawals totalled 2,596 tonnes which is far closer to known gold supply from Jansen which he reckons to be probably a minimum.

Shanghai Gold Exchange Monthly Gold Withdrawals (Tonnes)

Month 2016 2015 2014 % change 2015-2016 % change 2014-2016 
January 225.08 255.42 246.00 – 11.8% -8.5%
February* 107.60 156.36 171.67 – 31.2% -37.3%
March 183.24 213.35 146.56 -14.1% +25.0%
April 171.40 195.45 129.59 -12.3% +32.2%
May 147.28 162.15 129.34 -9.2% +13.8%
June 138.51 195.67 128.03 – 29.2% +8.2%
July 117.69 285.50 137.53 – 58.8% -14.4%
August 144.44 265.27 161.95 – 45.5% -10.8%
September 259.98 202.43
October 176.29 201.11
November 202.71 212.49
December 228.21 235.66
Year to end August 1,235.24 1,729.17 1,250.67 -28.6% -1.0%
Full Year 2,596.37 2,102.36    

Source: Shanghai Gold Exchange, Lawrieongold.com 

*February withdrawals figures tend to be erratically low due to SGE closure during the Chinese New Year (Golden Week) holiday which this year was on the week commencing February 8th

But where does this all leave us in terms of Chinese gold demand this year.  We would suggest south of 2,000 tonnes according to the SGE figures.  With Indian demand also reported as sharply down so far this year the big Asian demand element is obviously slipping sharply, but this has been more than overshadowed by the vast pick-up in demand from the world’s gold-backed ETFs which the World Gold Council has estimated as being up by 679 tonnes to end-August.  What you lose on the swings one gains on the roundabouts (carousels to American readers!)

WGC Report Shows H1 Gold Demand Highest On Record

The latest Gold Demand Trends report from the World Gold Council (WGC) is now out with data supplied by London-based precious metals research consultancy, Metals Focus.  It shows the highest level of H1 gold demand on record, largely on the back of investment demand – particularly in gold ETFs which absorbed 580 tonnes in the first half of the year.  Overall this countered a fall in net central bank gold sales, and falling consumer demand in the world’s two biggest countries for this in India and China.

While demand was high – so was supply with a resurgence in scrap supply brought on by the 25% rise in the US dollar gold price over the half year – which was enhanced in some countries by falling domestic currency parities against the dollar.

The World Gold Council’s summary press release detailing some of the highlights of the latest report is reproduced below, complete with a link to download the full report.

Near record high in H1 demand driven by western investors

Global gold demand reached 2,335 tonnes (t) in the first half of 2016 with investment reaching record H1 levels, 16% higher than the previous record in H1 2009, according to the World Gold Council’s latest Gold Demand Trends report.

Q2 2016 continued in the same vein as the first quarter this year with overall gold demand growing to 1,050t, up 15% from the Q2 2015 figure of 910t, boosted by considerable and consistent investment demand. Investment demand reached 448t as investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability. Exchange traded funds (ETFs) had a stellar first half of the year at almost 580t due to the additional inflows in Q2 of 237t. Bar and coin demand was also up in a number of markets in Q2, including the US at 25t (up 101%), leading to H1 bar and coin investment of 485t, 4% higher than the first half last year.

A cause and effect of the growth in investment demand was a 25% rise in the US$ gold price, the strongest H1 price gain since 1980. This contributed to lacklustre consumer purchasing, particularly in price sensitive markets. While there were increases for jewellery demand in the US (up 1%) and Iran (up 10%), the customary powerhouses of China and India saw drops in Q2 of 15% to 144t and 20% to 98t respectively. India was further impacted by rural incomes remaining under pressure, as well as the government’s decision to increase excise duty. Meanwhile, China faced a challenging quarter against a relatively soft economic backdrop and the implementation of new hallmarking legislation in May.

Central bank demand decreased 40% in Q2 2016 (77t), compared to 127t in the same period last year, resulting in net purchases for H1 now totalling 185t. While this quarter was the lowest level of net purchases since Q2 2011, it comes amid a significant rise in gold prices over H1, dramatically increasing the value of central bank gold holdings to US$1.4trn. Central banks are still expected to be key contributors to global demand, as gold provides diversification from currency reserves and, most notably, the dollar.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented:

“The strength of this quarter’s demand means that the first half of 2016 has been the second highest for gold on record, weighing in at 2,335t. The global picture for gold is dominated by considerable and continued investment demand driven by the West as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty.

The foundations for this demand are strong and diverse, drawing on a broad spectrum of investors accessing gold via a range of products, with gold-backed ETFs and bars and coins performing particularly strongly. But the global gold market is, and has always been, based on balance: so whilst investment is currently the largest component of demand, we see a gradual return for the jewellery market in the second half of 2016.”

Total supply for Q2 2016 saw an increase of 10% to 1,145t compared to 1,042t in the second quarter of 2015. The primary driver of this increase was recycling, which saw a significant rise  of 23%, as consumers capitalised on the rising gold price, leading to first half recycled gold supply of 687t, 10% higher than the 626t seen in H1 2015. Mine production remained broadly flat at 787t (790t in Q2 2015), while gold producers added 30t to the hedgebook.

The key findings included in the Gold Demand Trends Q2 2016 report are as follows:

  • Overall demand for Q2 2016 increased by 15% to 1,050t, up from 910t in Q2 2015.
  • Total consumer demand was 656t down 9% compared to 723t in Q2 2015.
  • Global investment demand was 448t, up 141% from 186t in the same period last year.
  • Global jewellery demand fell 14% to 444t versus 514t in the second quarter of 2015.
  • Central bank demand fell 40% to 77t in Q2 2016, compared to 127t in the same period last year.
  • Demand in the technology sector fell 3% to 81t in Q2 2016.
  • Total supply was up 10% to 1,145t in Q2 2016, from 1,042t in Q2 2015. Mine production in Q2 2016 was virtually flat year-on-year at 787t.

The Q2 2016 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed at http://www.gold.org/supply-and-demand/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting tool http://www.gold.org/supply-and-demand/interactive-gold-market-charting.

Why Gold, Why Now?

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

During my most recent webcast a couple of weeks ago, I had the pleasure of being joined by the CEO of the World Gold Council (WGC), Aram Shishmanian. As expected of someone of his stature, Aram brought another level of insight and expertise to our discussion of gold’s Love Trade and Fear Trade.

You might wonder what the WGC does exactly. In Aram’s words, it focuses on “innovation and integration to create the gold market” around the world. Among other important endeavors, the group “lobbies governments to make their countries appropriately pro-gold” and is the only agency in the world to “train central bankers in the use of gold.”

Below, I’ve selected a few key moments from the webcast to share with you. You can hear the full replay and follow along with the slide deck at usfunds.com.

A Stellar First Quarter

Aram: It’s an understatement to say that gold had a good quarter. It increased over 16 percent in the first quarter, the fastest it’s done so in 30 years, overtaken only by the Iranian oil crisis in the 80s.

The story is not just about the gold price. The gold ETF industry has increased by over 50 percent worldwide.  In addition to that, we’ve seen the market capitalization of members of the World Gold Council—which represents the majority of the gold mining companies in the world—increase 70 to 80 percent in the past four months alone.


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Rise of the Global Middle Class

Frank: The growth of gold’s Love Trade depends on rising global GDP per capita, and last year there was a tipping point in China. For the first time, the size of China’s middle class reached 109 million people, overtaking the U.S. middle class. This group gets lost in the sea of 1.4 billion people, but these 109 million people—a third the size of America—want to travel and buy higher quantities of gold for gift giving.

The same goes for India, where 600 million people are under the age of 25. That’s two times the size of the population in the U.S. They’re all wired. They’re all connected. They’re driven for education. Their affinity for gold is not going away.

If you look at China, the U.S. and India, there’s a significant portion of GDP growth, which is so important for the gold market.

China to Become a Gold Price-Maker

Aram: Today, China and India represent over 70 percent of world demand, driven by hundreds of millions of people and supported by pro-gold government policy. The U.S., by comparison, is 6 percent of world demand, yet price discovery on the COMEX (Commodity Exchange) and  in London is somewhat overweight because it is U.S. or Western economy-centric.

The Shanghai Gold Exchange was established 13 years ago and today is the largest gold exchange in the world, not to mention the most sophisticated. In April this year, it launched the Shanghai gold benchmark, which parallels that of the London benchmark price of physical gold. Last year, trading volumes in Shanghai were over 10 trillion renminbi.

China launched its yuan-denominated fix price for gold on Tuesday, April 19, with a gram set at 256.92 yuan ($39.69) equivalent to $1,234.50 an ounce

I think for those who haven’t had the opportunity to visit China, you have to go to understand that China is the biggest producer and consumer of gold. It imports over 600 tonnes a year and is driven by highly diverse demands by hundreds of millions of people. Three hundred million Chinese households will become middle class in the next two years, and they have a higher savings ratio than anyone in the world.

Gold Jewelry and Financial Security

Frank: Jewelry ends up becoming money whenever there’s a crisis in a country’s currency. Right now, it’s not so much a crisis as gold is an important asset class, in a world where we have zero interest rates.

Aram: Jewelry demand is still 45 percent of the gold market, and in Asian societies—India, China, Southwest Asia—it’s about wealth preservation. In India, a marriage is not a marriage without gold. It’s crucial to their belief system. The husband owns the land and the farm and other assets, but the wife owns the gold. It’s her security blanket. It’s not just about adornment, it is about financial security. That’s quite often misunderstood in the West where we think of jewelry as discretionary adornment.

In India, a marriage is not a marriage without gold

Frank: You can buy the most incredible gold jewelry, but it is 24 carat.

Aram: Yes, Chinese gold demand is purely 24 carat gold, which is 100 percent. In North America, 18 carats is the norm, but in India it’s 22 carats. During Diwali, it is auspicious to buy gold, and at certain festivals in India throughout the year, it is an auspicious time to marry and then you see peaks that are highly predictable.

Strong Gold Positions in Global Pension Funds

Frank: It’s unprecedented that a third of all global government debt has negative yields.

Aram: Which drives gold demand. Effectively what we’re seeing is people’s pensions being decimated because the policymakers have had very few if any alternatives left. It is in this environment that gold will help satisfy need.
Take the Japanese economy. Today, over 200 pension funds allocated about 2 percent to gold. It’s not only about wealth creation like the model in the Western world, where we generated 7 percent returns on investment for pension funds. That is gone in Japan, and therefore it’s more about protection of wealth rather than creation. That’s where gold plays.

Frank: In the state of Texas, where we’re based, Shayne McGuire, portfolio manager of the Gold Fund for the Teacher Retirement System (TRS) of Texas, is doing a great job. They’ve taken up a real strong position.

Aram: They took a strong position quite a few years ago. The TRS has been one of the forerunners of U.S. pension funds holding gold.

The Power of Scarcity

Aram: An important aspect of gold is its scarcity value. The total amount of gold produced in the history of mankind is about 170,000 tonnes. That’s the size of two Olympic-size swimming pools and it is still in use.

The amount of gold discoveries are very, very few now. Gold production at the moment is pretty constant. As you’ve seen with mining equities, huge capital investments were made in the last few years, but very little new supply came forward because the mining companies had to invest huge amounts of money to get licenses to operate and to find new discoveries and increasingly more complex mining conditions. In terms of supply, it is virtually constant. It goes up and down 1 or 2 percent per year, but it is constant.

Gold’s Timeless Allure

Aram: Producing gold iPhones has increased sales dramatically. It goes back to the idea that gold is integral to our belief system. It’s integral to our language. Not just in the DNA of far-flung countries but in our Western society.

Frank: And then talk about extravagant wealth in the Middle East, where some of these princes have their cars gold-plated. It’s extravagant, but I’m trying to highlight the allure of gold, which can be found everywhere, from the iPhone to buying 24 carat gold jewelry. I think this is important for investors to realize.

 

Gold Demand Just Had Its Strongest-Ever First Quarter

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

It makes a great deal of sense to own gold. Billionaire hedge fund manager, Paul Singer

This year’s first quarter is one for the history books. Not only did gold appreciate at its fastest pace in 30 years, but demand for the yellow metal was the strongest it’s ever been on record.

Let me repeat that: the strongest it has ever been.

Demand surged 21 percent from the same period a year ago, according to the latest World Gold Council (WGC) report. Most of this demand was driven by investment, with net inflows into gold ETFs reaching 363.7 tonnes, a seven-year high.


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Meanwhile, demand for bars and coins shot up 55 percent year-over-year, from 11.8 tonnes to 18.3 tonnes. Appetite for American Eagle coins jumped 68 percent.

Bad News Is Good News for Investors Who Have Diversified with Gold

Uncertainty over the world economy, not to mention central bank policy, continues to act as a major catalyst for demand, heating up the Fear Trade. With many countries currently locked in a global race to see who can devalue their currencies the fastest, investors are seeking better, more reliable stores of value, and gold is happy to oblige.

former libertarian vice presedential nominee wayne allyn root whose latest book is the power of relenetless

This was the message shared by Wayne Allyn Root, the “Capitalist Evangelist,” whose presentation I had the pleasure to see at the MoneyShow last week in Las Vegas. The week before last I said I would be speaking at the event, which was founded in 1981 by my dear friend Kim Githler, and I had no idea how popular Root really was. A businessman, politician and author, Root was the vice presidential candidate for the Libertarian party in 2008 and this year endorsed Donald Trump for president. At the MoneyShow, he packed the room with 1,400 people. Whole crowds turned out to hear him sermonize on entrepreneurship, individual rights and the importance of owning tangible assets such as precious metals and rare coins as a hedge against inflation and today’s uncertain financial markets. Owning gold, he said, is no longer a luxury but a necessity.

One of Root’s most interesting data points is just how much purchasing power the dollar has lost since 1913, the year the Federal Reserve was created: A million dollars then is worth about $25,000 today. Gold, on the other hand, has not only held its value but appreciated. One million dollars in gold in 1913 would now be worth more than $60 million.

Get educated on diversifying into gold!

Other huge names that presented at the MoneyShow included Gary Shilling, Art Laffer and Craig Johnson, a Piper Jaffray CFA and President of the Market Technicians Association. I had an enjoyable dinner with Craig, who called the current rally a “FOMO” rally. (I only recently learned, from my niece, that FOMO stands for “fear of missing out” and is widely used on social media.)

Another illuminating presentation I’d like to mention was conducted by IBD’s Amy Smith, who convincingly spoke on how the 2016 elections might change the stock market. The most actionable takeaway was that most blue chip stocks have typically done well no matter who occupies the White House, confirming my own attitude that, at the end of the day, it’s the policies that matter, not the party. The most compelling example she used was Netflix, whose stock has been a steady climber throughout both Bush 43 and Obama’s presidencies.

A reasonable, well-positioned portfolio, then, consists of strong, entrepreneurial names; gold (I always recommend a 10 percent weighting: 5 percent in gold stocks, 5 percent in physical bullion); and short-term, tax-free municipal bonds, which have historically done well even in times of economic turmoil, such as the tech bubble and the financial crisis.

Follow the Smart Money

The smart money is indeed flowing into gold right now. Earlier this month I shared with you the fact that hedge fund manager Stanley Drukenmiller, notable for having one of the best money management track records in history, cited gold as being his family office fund’s number one allocation. Druckenmiller is joined by billionaire Paul Singer, whose hedge fund oversees $28 billion. In his letter to clients last month, Singer wrote: “It makes a great deal of sense to own gold… Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”

About a third of global debt right now comes with a negative yield.

Elsewhere in the letter, Singer suggested that gold’s phenomenal first quarter, in which the metal rose 16.5 percent, is “just the beginning.” Further loss of confidence in central bankers’ ability to jumpstart growth could take the metal even higher.

This is the assessment of Paradigm Capital, who wrote in a recent report that “a standard gold price rally, a percentage exceeded or achieved in four of five major upcycles since 1976, would take us to around $1,800 ounces over the next three to four years.”

Register Today for Our Next Gold Webcast!

I invite all of you to register today for our next webcast, titled “All Eyes on Gold: What’s Attracting Investors to the Yellow Metal.” I’ll be discussing the chief factors driving gold demand right now, how historical and seasonal patterns affect gold and why the metal can be an integral part of your portfolio. The webcast will be held on June 8, starting at 4:15 PM Eastern time (3:15 PM Central time).

This is an exciting time for gold. I hope you’ll join me!

World Gold Council: Gold demand at record levels in Q1 2016

World gold demand, as assessed by consultancy Metals Focus on behalf of the World Gold Council (WGC), rose 21% as investors surged into gold ETFs.  Key figures on global demand and supply for the quarter as released by the WGC are set out below:

According to the WGC figures, global gold demand reached 1,290 tonnes in the first quarter of  2016, a 21% increase compared to the same period last year, making it the second largest quarter on record. This increase was driven by huge inflows into exchange traded funds (ETFs), fuelled by investor concerns regarding economic fragility and an uncertain financial landscape. It was all the more remarkable in that Asian demand, primarily from China and India, has been weak so far this year. thus, global demand for jewellery was down 19%, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases.

Inflows into ETFs totalled a massive  364 tonnes in the quarter – the highest quarterly level since Q1 2009 – and compares with 26 tonnes in Q1 a year ago. The WGC reckons that gold found favour as a risk diversifier due to the negative interest rate environment in Europe and Japan, combined with uncertainty over the Chinese economy, anticipation of slower interest rate rises in the US and global stock market turmoil.

Total bar and coin demand, even in Asia,  was stronger by some 254 tonnes, marginally higher than the same period last year. Weakness in price sensitive markets was offset by strength elsewhere with 5% growth in China (62 tonnes) and strong demand in the US and the UK, which grew by 55% and 61% respectively. In total, investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year, igniting a rally in the gold price which appreciated by 17% in dollar terms during the quarter.

This strong investment performance was not reflected in the bigger jewellery sector though, with demand levels sharply down in India and China. While both countries had a slow start to the year as a result of consumer uncertainty and rising gold prices, the situation was greatly exacerbated by the industrial action in India.

Central banks remained strong buyers, purchasing 109 tonnes in the quarter. This represents the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said: “Two major themes emerged in the first quarter of 2016. Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant driver of gold demand, helping to push prices up 17% over the course of the quarter, as ETF inflows swelled. Conversely, jewellery demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42 day strike by jewellers in India. But we believe Indian demand has simply been postponed, with buying likely to increase for Akshaya Tritiya [Akshaya Tritya demand, which was a few days ago, turned out to be disappointing] and the wedding season.

“Looking ahead we anticipate that ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand. This, combined with an expected recovery in India, should see gold demand remain healthy over the course of 2016.”

Total supply for Q1 2016 saw an increase of 5% to 1,135 tonnes compared with 1,081 tonnes in the first quarter of 2015. Increased hedging of 40 tonnes, coupled with slightly higher mine production of 734 tonnes (729 tonnes in Q1 2015), outweighed a marginal decline in recycling.

The key findings from the report for Q1 2016 are as follows:

  • Overall demand for Q1 2016 increased by 21% to 1,290 tonnes, up from 1,070 tonnes in Q1 2015.
  • Total consumer demand was 736 tonnes down 13% compared to 849 tonnes in Q1 2015.
  • Global investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year.
  • Global jewellery demand fell 19% to 482 tonnes versus 597 tonnes in the first quarter of 2015.  
  • Central bank demand dipped slightly to 109 tonnes in Q1 2016, compared to 112 tonnes in the same period last year.
  • Demand in the technology sector fell 3% to 81 tonnes in Q1 2016.
  • Total supply was up 5% to 1,135 tonnes in Q1 2016, from 1,081 tonnes in the first quarter of 2015. Mine supply was up 8% to 774 tonnes.

The Q1 2016 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed  here  and on the WGCs iOS and Android apps. Gold Demand Trends data can also be explored using the WGC interactive charting tool 

Yellen’s Interest Rate Intentions Good for Gold.  The Holmes SWOT

Strengths, Weaknesses, Opportunities, Threats analysis for the past week  by Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was silver, up 2.05 percent.  Reuters reports that Mario Cantu, the General Coordinator of Mining for Mexico (which the U.S. Geological Survey estimates was the world’s biggest silver producer in 2015), expects to see lower gold and silver production in 2016.
  • Gold popped to a one-week high following Federal Reserve minutes that indicated policy makers would remain cautious on raising interest rates, reports Bloomberg. Gold speculators think the precious metal has more room to run too; while gold futures have dipped from a 13-month high, hedge funds are the most bullish in fourteen months as seen in the chart below.

SWOT2

 

  • Central banks are buying gold, according to Wealth Daily, which reports that banks added 483 tons of gold in net purchases. That is the second-largest accumulation of gold by central banks in a year since the end of the gold standard era, continues the article. Speaking of gold buying, Eric Sprott announced this week his purchase of 10 million Newmarket Gold shares from Luxor Capital for C$22.5 million, making him the second-largest holder according to Bloomberg data.

Weaknesses

  • The worst performing precious metal for the week was palladium, down -4.58 percent. In a research note from UBS this week, the bank noted platinum and palladium as having limited attention from investors right now. Saying that “interest is lackluster and liquidity conditions are poor,” the group explains that both metals have “barely” reacted to news reports of auto sales, which are important since PGMs are used for catalytic converters.
  • China added the smallest amount to its central bank gold reserves in March, reports Bloomberg, with the People’s Bank of China expanding holdings by 0.5 percent. In India, gold imports slumped 88 percent last month, as a strike by jewelers continues in several parts of the country. Inbound shipments declined to around 15 metric tons in March versus 133 tons a year earlier, reports Bloomberg.
  • Strong manufacturing and jobs data out of the U.S. pushed gold down for earlier in the week, reports Bloomberg. Speculation that the American economy is gaining momentum could dampen demand for gold as an alternative asset.

Opportunities

  • Integra Gold Corp. announced this week its $6 million strategic investment in Eastmain Resources by way of a non-brokered private placement. The private placement is conditional on the successful election of the revised slate of Eastmain Board nominees at the annual general meeting of shareholders on April 29. The proposed Board of Directors is a group of well-respected and experienced leaders in the mining space. Eldorado Gold, which owns a significant share of Integra, was also upgraded by Credit Suisse the same day as the Integra announcement to Outperform from Neutral, with an additional push coming from Scotia as well.
  • Fed Chair Janet Yellen says she is prepared to allow inflation to overshoot and unemployment to fall below sustainable levels to prolong the U.S. economic recovery, reports the Financial Review. Yellen’s intentions to keep interest rates low for longer is a positive sign for gold. Credit Suisse also pinpointed opportunities for the precious metal this week. The group believes the equities rally isn’t over yet, and that gold could reach $1,300 an ounce on the back of ETF buying and a declining mine supply, reports Bloomberg.
  • Last week the World Gold Council released its latest market update report, where the effects of negative interest rate policies on gold were covered. Not only does the report state that “negative interest rates double gold returns,” but also suggests investors “consider doubling their gold allocations amid negative rates.”

Threats

  • Stan Druckenmiller, who compounded money at an annualized rate of return of 30 percent during his 25 years as a hedge fund manager, is warning investors, reports ZeroHedge. Druckenmiller believes the U.S. is heading for disaster. “When I look at the current picture of expected tax revenues combined with benefits promised to future generations, this is the most unsustainable situation I have seen ever in my career,” he states. JP Morgan has also expressed its doubt on the U.S. equity market in particular, adding that central banks can no longer save the day.
  • The Federal Reserve announced Friday that it will hold a closed meeting on Monday April 11, with speculators stating the Fed will likely discuss the possibility of negative interest rates. The closed meeting will be held “under expedited procedures” during which the Board of Governors will review and determine advance and discount rates charged by the Fed banks, reports ZeroHedge.  The last time the Fed held such a meeting they raised rates a month later in December 2015.
  • The White House is pushing investors toward government accounts and out of private investment accounts, writes the Wall Street Journal, and President Obama’s regulators aren’t slowing down. The article explains that the Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interest of clients. Continuing that what the rule fails to mention is that it carries an “enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts.”   Perhaps the government would like to collect those management fees from retirement accounts versus the private sector.  They have a wealth of experience managing Social Security assets.

Three hugely informative reports on gold published today.  Free downloads available

Seldom has so much information on gold been released in a single day.  The last day of Q1 2016 has seen the publication of consultancy Metals Focus’ Gold Focus 2016 and the similar GFMS Gold Survey 2016.  Both run to nearly 100 pages and are packed with analysis and data.

The third report is out from the World Gold Council (for which nowadays Metals Focus is the major gold statistics provider).  This looks at gold in a negative interest rates environment.

All three of these reports are downloadable off the internet free of charge and are absolute musts for anyone with an interest in gold analysis and trends.  To download click on the respective links below:

Metals Focus Gold Focus 2016

GFMS Gold Survey 2016

World Gold Council:  Gold in a world of Negative Interest Rates

Strong H2 uptick in gold demand in 2015 – WGC

 

The World Gold Council’s latest Gold Demand Trends report for full year 2015 is now out, utilising data prepared by London-based precious metals consultancy – Metals Focus.  Unlike the latest supply/demand report from rival consultancy GFMS, the WGC figures put China as firmly the World No. 1 gold consumer at 985 tonnes as compared with India’s 849 tonnes. However, as we have pointed out beforehand, we reckon that both the WGC and GFMS are missing the point in that actual physical gold flows into the Chinese jewellerey and industrial sectors, to which these figures primarily relate, ignore flows into commercial banks, and the overall Chinese total  for inputs of physical gold are far higher at perhaps 2,000 tonnes or more as represented by known gold imports, plus domestic new mined gold production, plus some element of domestic scrap supply.  In terms of gold flows from Western vaults into China this has to be a more relevant figure in assessing  global gold movements.

As with the earlier GFMS report, the WGC figures estimate global new mined gold demand beginning to contract quite sharply in Q4 2014.  This decline is likely to continue as some of the big new project deferments and cancellations start to impact as a part of the enforced capital cost cutting by the major gold mining companies necessary to bring down their debt levels and improve their balance sheets.

The WGC’s release on the latest Gold Demand Trends report follows:

Global gold demand in 2015 was virtually flat compared to 2014 at 4,212 tonnes (t), according to the World Gold Council’s latest Gold Demand Trends report. Despite a challenging start to the year, gold demand rebounded in the second half of 2015 as a result of sustainedbuying from central banks and a strong second half from China and India.

This was particularly evident in the retail investment sector, where bar and coin purchases were led by China and Europe, with strong support from the US, as investors took advantage of weaker prices amid a softening economic backdrop, financial turbulence and ongoing geopolitical tension.

Global investment demand for the full year 2015 grew by 8% to 878t from 815t in 2014. Bar and coin demand remained steady in 2015 as investors took advantage of a weaker price in Q3. The ETF market saw a slowdown in outflows: 133t in 2015, compared to 185t in 2014.  Q4 2015 witnessed a continuation of these trends with a number of key regions experiencing double digit growth.

Overall jewellery demand for the full year 2015 was down 3% to 2,415t from 2,481t in the previous year. Following a slower start to the year, the third and fourth quarters combined produced the strongest second half-year total for gold jewellery in 11 years. Q4 2015, saw steady levels of jewellery demand, at 671t compared to 677t in the same period last year, with retailers reporting an increase in sales around the Indian festival period.

Central Bank demand for the full year 2015 saw a small uptick from 584t in 2014 to 588t in 2015 as the need for further diversification was reinforced by a tumbling oil price and reduced confidence in the global economy. Demand in Q4 continued to be strong, up 25% to 167t from 134t in Q4 2014, making this the 20th consecutive quarter of net purchasing.

Gold demand in Q4 showed further positive signs, following a strong third quarter. In India both the investment (60t) and jewellery (173t) sectors were up 6%, boosted by the festival season. In China, which has witnessed economic turmoil, consumer uncertainty and currency weakness, gold demand held up well, particularly in the investment sector up 25% to 48t for the quarter.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:In a year that saw global economic and stock market turmoil, the first US interest rate rise in nine years and falling oil prices, demand for gold remained resilient, coming in at 4,212 tonnes for the full year. Official sector purchases, combined with strength in the Asian markets and continuing momentum in the US and Europe, reinforced gold’s credentials as a portfolio diversifier, a wealth preservation tool and a hedge against a range of risks.”

 “Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars and coins  by households across the world, led by India and China. If we just look at the year to date, the investment case for gold is as strong as ever. While stockmarkets have wobbled, gold has performed well.”

Full year 2015 saw China (985t) and India (849t) continue their dominance in the global gold market, accounting for close to 45% of total global gold demand during 2015, with annual consumer demand in both up 2% and 1% respectively.

Total supply for the year experienced a drop of 4% to 4,258t for the Full Year 2015 compared to 4,414t in 2014. This is reflective of both recycling hitting multi-year lows and mine production growth falling to its lowest level since 2008. Mine production contracted in Q4, the first quarterly contraction since 2008, as cost cutting took effect. Q4 2015 reported a more substantial decline of 10% to 1,037t compared to 1,152t in the same period last year as primary production slowed as a result of weaker gold prices, mine closures and project delays.

The FY 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/supply-and-demand/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting tool http://www.gold.org/supply-and-demand/interactive-gold-market-charting.

 

Full year 2015 figures:

  • Overall demand was 4,212t, virtually flat when compared to the 2014 figure of 4,226t
  • Total consumer demand was 3,427t, a 2% decline compared to 3,481t in 2014
  • Global investment demand was 878t a growth of 8% from 815t in 2014
  • Global jewellery demand in 2015 was down 3% to 2,415t from 2,481t in 2014
  • Central bank demand was virtually flat at 588t compared to 584t in 2014
  • Demand in the technology sector was down 5% to 331t from 346t in 2014
  • Total supply was down 4% to 4,258t compared to 4,414t in 2014 with total mine supply down 2% to 3,165t from 3,244t in 2014

 

Q4 2015

  • Overall demand increased 4% to 1,118t compared to 1,071t in Q4 2014
  • Total consumer demand was virtually flat at 935t compared to 938t in Q4 2014
  • Global investment demand grew by 15% to 195t from 169t in Q4 2014
  • Global jewellery demand softened to 671t down just 1% from 677t in Q4 2014
  • Central bank demand grew 25% to 167t compared to 134t in the same period last year
  • Demand in the technology sector fell 7% from 90t in Q4 2014 to 84t in Q4 2015
  • Total supply slipped  to 1,037t in Q4 2015 compared to 1,152t in the same period last year a decline of 10%, with total mine supply also decreasing by 9% to 810t from 893t in Q4 2014

How does one calculate the huge gold flows into China now SGE no longer publishing withdrawal data

Herewith my introductory paragraphs for my latest article on sharpspixley.com .  China’s SGE has stopped publishing withdrawals data as the nation becomes ever more sensitive about the scale of its gold accumulation.  In the absence of SGE figures how does one assess the true level of Chinese gold demand and absorption – what goes in doesn’t come back out and there’s far more to China’s gold inflows than suggested by mainstream precious metals consultancies’ and the WGC’s ‘consumption’ figures.  In the article I look at true Chinese gold absorption based on known imports, plus domestic gold output, plus scrap which together are hugely higher than the so-called consumption figures publicised in mainstream media.

There have been two schools of thought regarding the measurement of Chinese gold demand – those who have followed the figures put out by the major precious metals consultancies and the World Gold Council, and the hugely higher figures suggested by Shanghai Gold Exchange (SGE) withdrawal figures.

In truth we find the mainstream consultancy and WGC figures increasingly hard to live with, despite the analysts pouring scorn on the SGE figures which, to this observer, look much more likely if one relates them to known mainland China gold imports alone – let alone adding in the nation’s very substantial domestic new gold output.  For example, if one goes by mainstream consultancy GFMS China gold consumption figures you find an annual total under the consultancy’s latest report of something well south of 1,000 tonnes for 2015 and with the added comment that Indian consumption was ahead of that for China for the second consecutive year.

But – and this is a big but – it all depends on how one defines consumption.  As far as gold jewellery demand is concerned this is probably all very true.  But GFMS also comments that Chinese bank holdings of gold increased by as much as 400 tonnes over the first three quarters of the year bringing total bank holdings to some 1,900 tonnes at that time – and presumably to over 2,000 tonnes by the year end.  This is all gold being absorbed by the Chinese market in some form or another.  Interestingly if China treated its commercial bank holdings in the same way that Turkey does, then the country’s total gold reserves (Central Bank plus commercial banks) would probably be close to 4,000 tonnes, which does correlate pretty well to some estimates of total Chinese gold holdings, rather than the 1,762 tonnes the Central Bank reports to the IMF. ….

To read the full article CLICK HERE

2008 Comparisons Give Gold Big Boost

By Frank Holmes – CEO and Chief Investment Officer, U.S. Global Investors

Plunging oil prices, rising market volatility, surging global debt—it’s all beginning to remind some investors of 2008. Earlier this month, billionaire former hedge fund manager George Soros warned of an impending financial crisis similar to the last major one, which sent shockwaves throughout global markets.

The comparisons to 2008 have triggered gold’s Fear Trade, with many investors scrambling into safe haven assets. Jeffrey Gundlach, the legendary “bond king,” recently made a call that amid further market turmoil, the metal could spike as much as 30 percent, to $1,400 an ounce.

Are we headed for another 2008? George Soros thinks so.

Making such predictions is often a fool’s game, but there’s no denying that gold demand is on the rise, both in the U.S. and abroad. For the one-month period ended January 20, gold (and silver) outperformed, comfortably beating domestic equities as well as a basket of other commodities.

Precious Metals on Top in 2016
click to enlarge

I’ve already shared with you the fact that gold has historically had a low correlation with equities. This point is worth reiterating: When equities have zigged, gold has zagged. And with volatility high in global markets right now, many investors are choosing to rotate a portion of their portfolios into the precious metal.

Marc Faber suggests that it might be a good time to get back into gold.

This was the advice of my friend Marc Faber, who recently warned investors in his influential “Gloom, Boom & Doom Report” newsletter that global stocks could fall an additional 40 percent on mounting liquidity and debt problems. In the event such a crisis occurs, Marc says, investing in gold—which, again, has been shown to be inversely correlated with stocks—might be one way to protect one’s wealth.

I’ve always recommended a 10 percent weighting in gold: 5 percent in physical bullion, the other 5 percent in gold stocks or mutual funds. This applies in all market conditions, good or bad.

Something else I want to draw attention to in the chart above is the extreme divergence in performance between gold and oil, which is trading at levels we haven’t seen in a long while. Declines in oil have traditionally invited enormous selloffs in other commodities, making gold’s resilience at this time all the more impressive.

China Consumed Nearly All of Global Gold Output in 2015

Investors in China appear to recognize the importance of gold in times of market uncertainty. Since June 2015, the Shanghai Composite Index has dropped close to 45 percent, prompting scores of retail investors to pivot into safe haven assets such as gold. As you can see below, 2015 was a blowout year for the Shanghai Gold Exchange (SGE), which in the past has served as a good measure of wholesale demand in China.

Physical Gold Delivered from Shanghai Gold Exchange (SGE) vs. World Mining Output
click to enlarge

Not only did gold deliveries climb to a record number of tonnes in 2015, they also represented more than 90 percent of the total global output of the yellow metal for the year.

The SGE has made it incredibly easy for Chinese citizens to participate in gold investing. Recently it rolled out a smartphone app, making it more convenient than ever before to open an account and begin trading.

Gold Miners Are Winners of the Currency Wars

Gold priced in the strong U.S. dollar might have netted a loss in 2015, but in many other parts of the world, prices were either stable or even made gains. For buyers of gold in non-dollar economies, it’s the local price that matters most, not the dollar. In Russia, the third-largest producer, the metal rose 12 percent—and came close to an all-time high. In South Africa, the sixth-largest, it was well above the all-time high. Investors there saw returns of greater than 20 percent in 2015.

Gold Was Positive in Non-Dollar Currencies
click to enlarge

This has been beneficial to many mining companies based outside the U.S. Operations are paid for in local currencies—most of which have weakened in the last year—but companies sell their production in U.S. dollars. This has helped offset the decline in gold prices since they peaked in 2011.

Canadian-based companies such as Claude Resources, Richmont and Agnico Eagle Mines are performing well, even in the gold bear market and amid high volatility.

Canadian Gold Stock Performance
click to enlarge

For the last three years, gold miners all over the globe have been thoroughly beaten up. Today, they’re heavily discounted, and there are signs that conditions are stabilizing.

Managing Expectations

With the Fear Trade heating up, it’s important that we manage our expectations. The length and extent of the current bear market, which began in September 2011, might seem unprecedented to many investors. In actuality, it doesn’t veer very far from what we’ve seen in the past, according to data presented by the World Gold Council (WGC).

Current Gold Bear Market Not Far off the Mean
January 1970 – January 2016
Current Gold Bear Market Not Far off the Mean BULL MARKET Current Gold Bear Market Not Far off the Mean BEAR MARKET
Dates Length (months) Cumulative Return Dates Length (months) Cumulative Return
Jan 1970 –
Jan 1975
61 451.4% Jan 1975 –
Sep 1976
20 -46.4%
Oct 1976 –
Feb 1980
41 721.3% Feb 1980 –
Mar 1985
61 -55.9%
Mar 1985 –
Dec 1987
33 75.8% Dec 1987 –
Mar 1993
63 -34.7%
Apr 1993 –
Feb 1996
35 27.2% Feb 1996 –
Sep 1999
43 -39.1%
Oct 1999 –
Sep 2011
144 649.6% Sep 2011 –
Present
52 -44.1%
Average 63 385.1% Average 47 -44.0%
Median 41 451.4% Median 52 -42.7%
Source: World Gold Council, U.S. Global Investors

Reaching back to 1970, the WGC identified five bull and bear markets, with bull markets defined as periods when gold prices rose for longer than two consecutive years, bear markets as the subsequent periods when they fell for a sustained length of time. Although these lengths vary, the cumulative loss in each bear market is relatively uniform, with median returns at negative 42.7 percent.

The present bear market, at negative 44.1 percent, falls easily within the realm of normalcy.

Further, the table suggests that a turnaround in gold prices is overdue.

CGA figures equate Chinese domestic gold demand to SGE withdrawals

My latest article on sharpspixley.com.

It seems to take an awful long time for the publication to appear, but now the Chinese Gold Association (CGA) has published, in Chinese, its 2014 Gold Yearbook and its figures for China’s gold demand that year, and for China’s gold imports, differ strongly from those put out by major precious metals consultancies such as GFMS (which also provided data to the World Gold Council that year), Metals Focus (which is current data provider for the WGC), and CPM Group – the most prominent U.S. based precious metals consultancy.  The report on the latest CGA figures to be published came from who else but precious metals chart guru, Nick Laird of www.Sharelynx.com, who monitors China figures extremely closely, and who also published an image from the yearbook showing the actual table from the report

For 2014 for example, the WGC (whose figures seem to be taken as gospel by the world’s major media outlets) reported mainland Chinese gold consumption that year at 813.6 tonnes.  The CGA yearbook stated the total Chinese gold demand figure at 2,106 tonnes – which is actually extremely close to the Shanghai Gold Exchange (SGE) withdrawals figure for the same year at 2,102 tonnes.  (For 2013 CGA total demand figures were also almost identical to SGE withdrawal figures for that year.)   Now while the categorisation of what should actually be included in the WGC consumer demand figure may differ somewhat from what is included in the CGA total demand figure, the 2014 difference of 1,292 tonnes between the two sources stretches belief.  Either the WGC (using GFMS figures) got it hugely wrong, or the China Gold Association is including all kinds of things which the WGC isn’t in its calculations…….

To read the full article, which goes into more detail on Chinese gold data, click here

UPDATED: Latest Gold Reserve figures from the World Gold Council

A computer glitch had recorded the % of reserves for all countries at 18.8%.  This has now been corrected.

The World Gold Council (WGC) has today announced its regular statistical update on gold reserves in the official sector.  This monthly release includes (1) World Official Gold Holdings ranking gold holdings by country, (2) a spreadsheet with the latest changes in official sector gold holdings.  As noted these are not completely up to date – except for the Chinese reserve figure where we have added in the 19.8 tonne change in our table.  We are also only showing the Top 20 national plus IMF holdings in our table below – a full table for all countries as reported to the IMF is available on the WGC website (www.gold.org/statistics ).

Table 1.  Top 20 Gold Reserves as reported to the IMF

Tonnes % of reserves**
1 United States 8,133.5 73.4%
2 Germany 3,381.0 67.7%
3 IMF 2,814.0
4 Italy 2,451.8 65.6%
5 France 2,435.5 65.6%
6 China 1,722.5 1.8%
7 Russia 1,370.6 13.6%
8 Switzerland 1,040.0 6.4%
9 Japan 765.2 2.3%
10 Netherlands 612.5 56.5%
11 India 557.7 5.8%
12 ECB 504.8 25.8%
13 Turkey 500.9 15.3%
14 Taiwan 423.6 3.5%
15 Portugal 382.5 72.9%
16 Venezuela 361.0 67.4%
17 Saudi Arabia 322.9 1.8%
18 United Kingdom 310.3 8.6%
19 Lebanon 286.8 20.9%
20 Spain 281.6 18.8%

* This table was updated in December 2015 and reports data available at that time.  Data are taken from the International Monetary Fund’s International Financial Statistics (IFS), December 2015 edition, and other sources where applicable. IFS data are two months in arrears, so holdings are as of October 2015 for most countries, September 2015 or earlier for late reporters

What analysts primarily look out for are for any month by month changes in the official holdings figures.  As can be seen below the only significant regular additions to gold reserves in the second half of the year are By Russia (95.6 tonnes in the four months to end October), China (83.9 tonnes in the five months to end November) and Kazakhstan (11.7 tonnes in the 4 months to end-October).  Our assumption is that going forward we would expect these countries, which seem intent on building their gold reserves, will continue to buy at a similar pace.  For the record. According to the IMF figures Kazakhstan is 23rd on the list of national gold holders with 216.3 tonnes which accounts for 27.8% of its total official reserves.

The IMF figures should be taken as a guide as they relate to holdings as reported by the various countries and do not take account of gold holdings which may be temporarily reduced due to gold swaps and leasing (as the countries do not need to report these figures under the IMF guidance), or countries which may be under-reporting their gold holdings as many believe China to be.

Table 2  Changes to official reserves since July*

Country Comments Jul Aug Sept Oct Nov Dec
Belarus Purchases and swaps +2.5  -3.0  -2.5
Brunei Darussalam +0.2  -0.3
China +19.0 +16.2 +14.9 +14.0 +19.8
Colombia  -6.6  -0.3
Czech Republic  -0.2
France +0.1
Jordan +7.5  -0.6
Kazakhstan Purchases and swaps +2.5 +2.1 +3.2 +2.9
Malaysia +0.6
Mexico Additions to reserves and trading  -0.1  -0.2  -0.2  -0.1
Mongolia Trading activity +1.0  -0.9  -0.6  -0.2
Mozambique +0.6  -0.9
Philippines Buys locally produced gold; may sell or retain in reserves +0.1
Russia Mainly purchases of gold in the domestic market & other changes +13.1 +29.6 +34.5 +18.4
Serbia +0.1 +0.1
Sri Lanka Trading activity  -0.2
Turkey3 +17.2 +0.6  -13.2  -3.6
Ukraine +2.2 +0.9 +0.3
United Arab Emirates +2.4 +0.1 +0.1
Uruguay  -0.2
 

*As in Table 1, IFS data are two months in arrears, so holdings are as of October 2015 for most countries, September 2015 or earlier for late reporters.  We have added in China’s latest Reserve upgrade for November.

3Gold has been added to Turkey’s balance sheet as a result of the policy accepting gold in its reserve requirements from commercial banks

 

 

Co-operation, positives and negatives at major gold event

The first full day of this year’s Denver Gold Forum opened with an announcement of a co-operative agreement between the Denver Gold Group (DGG) and the World Gold Council (WGC), followed by some extremely interesting presentations and a fascinating and informative panel discussion on paper gold, but which still left some key questions unanswered, or unclear.

Regarding the co-operation – in a joint announcement the DGG and WGC noted that between them the two groups represent almost all the world’s top gold miners in terms of production, mineral reserves and market value. Through closer co-ordination and collaboration they aim to ensure that miners are better informed on demand drivers, market trends and key developments.  While both parties may have differing outlooks on the industry, arguably their purposes do coincide.

The DGG’s Executive Director, Tim Wood commenting on the agreement noted: ““For some time the interests of our members have been aligned, so it makes strategic sense to work more closely. After nearly three decades of service to the industry, the Denver Gold Group has evolved as a significant platform for sharing ideas, information and experience. The World Gold Council produces the highest quality market data and insights, informed by its direct experience of the consumer markets. We believe this knowledge and perspective is important for our members, particularly to counter-balance the short-term, sentiment-driven commentary that often crowds the gold space.”

But back to the conference, the day opened early with two parallel keynote addresses and the writer attended the one on exploration trends and their likely impact on the industry looking ahead from David Cox of SNL Financial – which has recently been acquired by McGraw Hill.  While the overall mood of the conference may indeed be more positive than the past three years’ precious metals price performance might suggest – well the mining companies wouldn’t be in it if they didn’t think there was great excellent upside potential ahead – Cox and SNL’s analysis showed what has been in effect a pretty disastrous experience within the gold exploration space, with the majors initiating some big cutbacks, while the juniors, which had hitherto provided the largest part of exploration activity, struggling with lack of funding available to maintain a decent level of exploration activity.

What this is that global gold production is likely to move into long term decline with the mining companies no longer having the new gold resources available to them to replace aging assets due for closure or where grades are falling off.  Coupled with the huge lead times in moving a potential project from exploration through to production it could be many years, if ever, that miners get back to the gold output levels seen over the past couple of years.

Interestingly, Cox noted that SNL research suggests that global new mined gold output this year will see a small decline.  This runs counter to the forecasts from the major mainstream precious metals analysts who are all predicting a small increase.  Indeed Jeff Christian of CPM group sees production rising until 2017 before falling back sharply in 2018.  When questioned on the SNL projection Cox commented that the SNL figures are perhaps more up to date than those of the analysts which will have been calculated early in the year.

Peak gold – or crest gold as another delegate put it – may thus already have passed if SNL is correct.  The same delegate who works for one of the big mid-tier gold producers also expressed the view that although gold output may be beginning to fall it will have little impact on the metal’s price performance as this was more affected by gold trading and sentiment – although interestingly the paper gold panellists, who participated later in the day, held the opposite view and saw declining mine production of gold being key to the longer term performance of the metal price. More on this panel discussion later on.

Corporate presentations followed and the international nature of the Denver Gold Group’s membership was demonstrated here with talks from companies headquartered in the USA, Canada, China, Russia, the UK, Peru, Mexico and Australia and many of these with their operations in a number of other countries too.  With parallel sessions and various other meeting commitments one can only give a brief snapshot of the various corporate talks.

Presentations from gold, silver and other precious metals producers were almost unanimous in seeing costs still on the downwards path as they have sought to get to grips with the lower prevailing metals prices.  Those with operations in non-dollar area countries are also seeing some substantial benefits from local currency depreciation.

Of the bigger gold miners to present on the first full conference day, Gold Fields in particular has seen big benefits from the fall in the Australian dollar against its U.S. counterpart, while Russian-owned Nordgold, which will probably mine 1 million gold ounces this year at low costs and producing strong cashflows, sees the current gold price as opening up some great opportunities for acquisitions leading to further growth.

Ivanhoe’s presentation was limited to its Platreef wide reef platinum find on the northern limb of South Africa’s Bushveld Igneous Complex which could be something of a game-changer for South Africa’s beleaguered pgm sector.  Here it was good to hear a presentation by Ivanhoe’s David Broughton – free of much of the hype which normally surrounds presentations on the project by the company’s founder Robert Friedland.

Silver miner Coeur saw this as being a transformational year, while Hecla, already a low cost producer, was looking to its revitalised San Sebastian mine as the catalyst for further growth with a very low capital cost to production of a newly exposed high grade vein system suggesting a phenomenal project IRR of 444%!

Yamana’s Peter Marrone reported a much improved business model for the company with a focus on core assets and the monetization of non-core properties.  The second half of the year would see a substantial improvement over H1 with Q3 being better than Q2 and Q4 better than Q3.  There are high hopes for the developing Cerro Moro high grade gold/silver project in Argentina which is being brought to production.

A complete session was devoted to Royalty companies which have been among the best performers in what has been a difficult metal price climate.

The lunchtime panel presentation on paper gold was very well attended – with the fact that it is paper gold which appears to have been setting the price – and also responsible for some of the downward spikes seen by many gold bulls as proof of market manipulation.  None of the trading element on the panel saw manipulation as being in evidence putting these pricing anomalies down to being part of the vagaries of algorithmic high frequency trading which can hugely exaggerate market movements, although none were really able to give a convincing explanation in these terms for the big July 19 downward spike which took place almost simultaneously on COMEX and the SGE  when Western markets were closed and activity was extremely thin.  Someone had to have made the initial trades after which the algos took over and took the price down vertically before generating some partial recovery.

Interestingly even the traders on the panel all professed to be strongly bullish longer term on gold, but also all felt the price could yet fall to new lows before a strong recovery.

Nonetheless some of the explanations of how the markets actually worked were enlightening – but perhaps not so much so as to convince the out and out gold bulls that markets were not being manipulated so as to depress gold and silver prices.  There was also an explanation on  how the COMEX approved warehouse stock position worked, but not sufficiently so to clear up what proportion of eligible gold stocks is actually available to be converted to the registered category to prevent a possible default given the huge recent decline in the registered stock position.  The principal comment seemed to be that so little of COMEX trade is actually in physical metal, that the low registered stock position was largely irrelevant.

The afternoon saw presentations from a number of other gold and silver producers, including Pretium Resources developing the big high grade Brucejack gold/silver project to production over the next two years.  Pretium has just closed a $540 million financing – a probably unique feat for a junior in the current metal price and financial climate, demonstrating that there is still money available for a top of the class new mine project development.

All in all another very interesting day.  Again it is fair to say the mood was far more upbeat than the past few years’ precious metals price performance would seem to justify.  But as we have pointed out before, to be in mining at all one has to be something of an optimist – or perhaps a masochist as one Filipino mining executive once told the writer in the distant past.  But the DGG organisers should be congratulated in generating such a strong financial audience in what could at the best be described as an extremely difficult investment climate.  There’s still life in precious metals mining yet!

 

 

 

 

Global gold demand down 12% Q2 2015

The latest run of statistics from the World Gold Council has been released in the form of its Q2 Gold Demand Trends analysis with data nowadays being provided by London-based precious metals consultancy – Metals Focus.  While it finds that global demand is down 12% year on year it notes that there is a good likelihood that demand will pick up well in the second half – indeed the latest gold price moves and figures for Indian imports and SGE withdrawals suggest that this may already be happening.  On the Fundamentals front it also noted that supply was down 5% with an increase in mine supply being more than countered by a fall in gold scrap supplies. Central bank purchases were down year on year but still remained strong with the Q2 figure up on that for Q1.

The World Gold Council’s own release on the latest figures, with links to the full report, follows:

The World Gold Council’s Gold Demand Trends report for Q2 2015 shows total demand was 915 tonnes (t), a fall of 12% compared to the same period last year, due mainly to a decline in demand from consumers in India and China. However, demand in Europe and the US grew, driven by a mixture of increasingly confident jewellery buyers and strong demand for bars and coins. Looking ahead, there are encouraging signs moving into what are traditionally the busiest quarters for gold buying in India and China.

Overall jewellery demand was down 14% to 513t, from 595t in 2014 due to falls in consumer spending in Asia. In China, slowing economic growth and a rallying stock market led to a 5% fall in demand to 174t. In India, the heavy unseasonal rains in Q1 and drought in Q2 impacted rural incomes and affected gold demand. In addition, a dearth of auspicious days for marriages in Q3 meant that wedding-related demand was unusually slow, leading to a fall in jewellery demand of 23% to 118t. Overall, if we look at the picture for the first half of this year in India, jewellery was down 3% to 268.8t from 276.1t (H1 2014). The US remained steady, with jewellery demand up for the sixth consecutive quarter by 2% (26t). In Europe demand was also up, with Germany up 7% and the UK and Spain both growing by 6%.

Global investment demand was down 11% to 179t from 200t in Q2 2014. India was the main driver of the fall, down 30% to 37t, due to uncertain price expectations and a buoyant stock market. This was countered by a rise in Chinese bar and coin demand, up 6% to 42t. In Europe, fears of a potential Greek exit from the eurozone saw retail investment in gold reach 47t, a rise of 19% compared to last year. The US also saw strong demand, with retail investment increasing by 7%. Of particular note was the huge burst of activity in June, when bullion coin sales by the US Mint hit a 17-month high.

Elsewhere, central banks continued to be strong buyers of gold. Net official sector purchases totalled 137t, with Russia and Kazakhstan the biggest purchasers. Although a year-on-year fall of 13%, buying increased by 11% when compared with the first quarter of this year. It is the 18th consecutive quarter where central banks were net purchasers of gold.

Total supply was down 5% to 1,033t, as an increase in mine production of 3% to 787t in Q2 2015 was offset by declining recycling levels – down 8% to 251t. The indication for H2 2015 is that mine production will slow as the gold mining industry continues to manage their costs and optimise operations in the face of challenging markets.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:

“It’s been a challenging market for gold this quarter, particularly in Asia, on the back of falls in India and China. The reverse is true for western jewellery markets, as increased economic confidence led to continued growth in consumer demand. It is  fair to say that investment demand for the quarter remained muted given the continuing recovery in the US economy and booming stock markets in India and China during the quarter. 

Jewellery market prospects look healthier for the remainder of the year with the upcoming wedding and festival season in India. In addition, falls in the gold price have historically triggered buying in price sensitive markets and we are already seeing early indications of this across Asia and the Middle East. Conversely, sharp falls in Chinese stock markets have shaken the largely consumer investment base and we are seeing early indications of interest in buying gold again – all illustrating the unique self balancing nature of gold demand and the diverse drivers which underpin it.” 

Gold demand and supply statistics for Q2 2015

  • Overall demand was down 12% in Q2 2015 to 915t compared to 1,038t in Q2 2014.
  • Total consumer demand – made up of jewellery demand and coin and bar demand – totalled 715t, down 14% compared to Q2 2014.
  • Global jewellery demand was 513t, down 14% compared to the same period last year, due to falls in China, down 5% to 174t, as well as India, down 23% to 118t.  The US and Europe saw continued growth with the US up 2% to 26t, and Europe up 1% to 15t.
  • Total investment demand was down 11% to 179t, compared to 200t in the same quarter the previous year. Demand for bars and coins saw a 15% drop to 201t from 238t  the previous year, as the sector was affected by an expected increase in US interest rates and a continued shift towards other asset classes, notably equities. ETFs saw outflows totalling 23t, lower than the outflows of 38t seen in the same quarter last year.
  • Central banks continued to be strong buyers of gold, accounting for 137t in Q2 2015, slightly down on the equivalent quarter last year, but up 11% compared to the previous quarter. It was the 18th consecutive quarter where central banks were net purchasers.
  • Year-on-year quarterly mine production increased 3% to 787t in Q2 2015, against 763t in Q2 2014. Recycling levels were down 8% year-on-year to 251t compared to 273t in Q2 2014, resulting in total supply falling 5% to 1,033t.

The Q2 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/supply-and-demand/gold-demand-trendsand on our iOS and Android apps..

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