Gold Demand Trends of 2017Dwight Flenniken III
The World Gold Council, a trade group for the gold industry, published in early May its report on trends in gold demand for the first quarter of 2017. The report is well worth reading, as it contains numerous insights that could help gold investors.
Investment Demand for Gold
The highlight of the report was that inflows of gold into exchange-traded funds (ETFs) decreased significantly compared to the first quarter of 2016. By itself, this isn’t terribly meaningful, as the first quarter of 2016 saw record purchases by ETFs. Besides, it’s always more important to compare total year data, and we’re not even halfway into 2017. The really important takeaway is that most of the inflow into ETFs in Q1 2017 was in Germany and the UK. This reflects the uncertainty surrounding Brexit and the demand for investors to put their assets in a safe haven. The moral of the story is that the greater the political uncertainty, the more demand there will be for gold.
Bar and Coin Demand Increasing
Demand for gold bars and gold coins increased in Q1 2017 vs. Q2016, increasing 9%. This is a better reflection of gold demand among individual investors. Institutional investors such as pension funds and retirement funds like to invest in ETFs because they are a security similar to a stock or bond and can be treated in much the same way. Individual investors often prefer gold coins or bars because they are investing in a physical piece of gold, unlike an ETF that just offers shares in a fund that is supposedly backed by gold. The fact that demand for bars and coins is up 9% year-on-year means that demand is still strong, which should be reflected by continued price rises into 2017. One thing to watch for is demand from China. Retail investment demand in China for bars and coins was up 30% in 2017. If that trend holds through the year, it could definitely put upward pressure on gold prices.
The Indian Gold Market
Gold demand in India increased 16% year-on-year, very likely buoyed by the crackdown on cash initiated by the Modi government late last year. The Indian market has always been one of the most important for gold, as Indians purchase huge amounts of gold jewelry during the wedding season and hold much of their wealth in the form of gold jewelry. The Indian government, however, doesn’t like to see those private gold holdings and periodically raises taxes on gold imports to try to stifle gold demand. The government also has tried several different gold monetization schemes to try to get Indian citizens to deposit their gold in banks, to no avail. Keep an eye on India, as what happens there has a great effect on gold demand.
The Decreasing Supply of Gold
Of particular importance to gold investors is the decreasing supply of gold, down 12% in Q1 2017 vs. Q1 2016. A large part of this is due to a decrease in gold recycling. However, gold mine production is expected to drop steeply within the next five to ten years. Steady to increasing demand plus diminishing supply means an increase in gold prices.
How to Benefit
It definitely appears that everything is aligning for gold prices to rise this year and into the future. And it’s never been easier to invest in gold. Thanks to loopholes in the tax code, investors are able to invest in gold through the use of gold IRAs. Investing in a gold IRA means that you can invest in gold coins and gain the benefits of gold’s safe haven status, the benefits of the tax treatment afforded to IRAs, and the benefits of future gold prices increases. This trifecta can help anyone in retirement or close to retirement to keep their savings and wealth secure throughout their golden years and ensure that they can live out their retirement in peace and comfort.