The optimism around the trade war is rising. Accordingly, stock prices have been bullish for days and really strong. Dax, Dow, Nasdaq and Co rise significantly! Even emerging markets are reporting record highs. The risk appetite of the markets is therefore rising. This usually automatically weakens the so-called “safe havens” like gold. This should actually “by definition” lead to a falling gold price. Since the end of last week we have been reporting on how stable the price of gold is these days. It is not falling at all. Instead, it is maintaining itself at the high level of over 1,500 Dollars. A level it was largely able to maintain after strong increases in August (gold price in Dollars on the chart since the end of 2018).
Robust gold price – a valid reason
This morning the World Gold Council provides a good reason why the price of gold has been so robust for days and weeks. In the third quarter the inflow into Exchange Traded Funds (ETF), which invest in gold, increased by 258.2 tonnes compared to the second quarter. The volume of gold ETFs rose to an all-time high of 2,855.3 tonnes. The inflows in the last quarter were higher than at any time in 3 1/2 years! The loose monetary policy of central banks, as well as the continuing urge for safe havens and momentum buying, were the main factors. So, as we already suspected yesterday. Although riskier assets like equities are currently doing well. There is still a basic fear scenario in the markets. Gold demand from ETFs has offset weaker demand from other segments, according to the World Gold Council.
Central banks further increase reserves in gold
Also, the World Gold Council currently mentions that the central banks continue to significantly increase their reserves in gold with +156.2t in the last quarter. This growth was 38% lower than in the record quarter exactly one year ago. But hey, the acquisitions are still growing strongly! In comparison January-September 2018 to January-September 2019 the gold purchases of the central banks (this year 547.5t) increased by 12%. This side is also continuing to exert strong buyer pressure on the gold price.
What are reasons against a further boost for gold?
ETFs and central banks are therefore supporters of a robust gold price. On the other hand, aspects such as weak demand from the jewellery sector, which fell by 16% in the last quarter, are holding up. Investments in gold bars and coins also halved in the last quarter to 150.3 tonnes. Given the high price of gold, private customers would have made fewer purchases recently. And the supply of gold also rose in the last quarter by 4% to 1,222.3 tonnes (the demand side rose by 3%). Well, not everything speaks for a further rise in the price of gold. According to the World Gold Council, the rally in gold prices in the 3rd quarter and the current stability was due to the fact that geopolitical uncertainties remain. That the economy is weakening and that interest rates have been lowered worldwide (interest rate investments are becoming less attractive). Here in the wording:
Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented: “Demand this quarter nudged higher as the continued surge into ETFs more than compensated for weaker demand elsewhere. Investors have increased their exposure to gold in response to low interest rates, negative yields, and geopolitical and economic uncertainty. Indeed, gold-backed ETF volumes hit an all-time high in September. But those same global trends, notably an economic slowdown in India and China coupled with the sharp increase in the gold price, mean many consumers have held off buying gold jewellery. “Looking forward, we expect to see many of these trends continue into the end of the year as monetary policy is likely to become even more accommodative in the US and global political issues continue to weigh on sentiment.”