Precious Metals
Gold’s price, like the price of any other asset, is driven by issues of supply and demand. Increases in supply lead to price drops, while increases in demand lead to price increases. With the mining sector facing increasing difficulty in discovering new gold deposits, and with economic headwinds encouraging more and more investors to get into gold as a safe haven investment asset, all signs are pointing to gold increasing in price over the rest of the year.
Gold demand last year was driven largely by central banks, who boosted their buying of gold to near-record levels. Central banks around the world understand that the world economy is on the verge of another economic crisis, so they’re doing everything they can to shore up their balance sheets ahead of time. Gold demand over the past four quarters has been over 700 tonnes, a record high.
Investor demand for gold has increased too, with demand from gold ETFs up 49% in the first quarter of 2019. Demand for gold bars has decreased, but that was largely offset with a 12% increase in demand for gold coins. That’s an indicator that larger investors who can afford bars have already gotten hold of the gold they need, while smaller and individual investors who prefer coins are still ramping up their purchases. With stock markets continuing to show weakness, there’s no reason to expect that demand for gold coins will slow down anytime soon.
Jewelry demand is up slightly too this year, with the Indian wedding season now behind us. About the only slow point in gold demand is industrial demand from the technology sector. Given the trade war between the US and China and the effect that will have on electronics production and therefore gold demand for semiconductor chips, that is one possible area where demand could continue to fall.
Overall, demand for gold seems set to increase, with no indications that anyone is getting rid of their holdings anytime soon. With the economy on edge and more and more investors and financial institutions looking for a safe haven and a hedge against economic uncertainty, gold is the natural choice to defend retirement savings, balance sheets, and any other assets that need protection.
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