The World Gold Council (WGC) is the world’s premier organization devoted to promoting gold demand through marketing, research and lobbying. A nonprofit association of the world’s leading gold producers, its home office, appropriately enough, is in London; with satellite offices in India, the Far East and the U.S.
The WGC’s research is meticulous, thorough and publicized regularly in the form of quarterly and special reports. When its analysts speak, investors and gold marketers listen, since the organization offers the industry’s most comprehensive account of gold production, supply and demand.
In its first quarter trends report, the WGC reveals that gold demand is up by twenty-one percent in the first three months of 2016 – the “strongest first quarter on record.” According to the report:
“Notably, there is anecdotal evidence that many of these inflows are from investors initiating or rebuilding strategic, long-term holdings after the wash-out of positions since early 2013. While a portion of the inflows were driven by price momentum and likely to be more tactical in nature, latent demand among investors who have been looking for an opportunity to re-enter the market was a key factor.”
What’s fascinating about this finding is that investment demand was driven in the first quarter not only by new investors, but investors who chose to come back to gold. Apparently, they (literally) bought into over-optimistic assessments of the economy, strayed, and now were returning to their familiar safe haven – gold.
And while it’s true much of this activity took the form of ETF investment during the seventeen percent jump in gold prices, the report also makes clear the market encountered “surging physical demand” for bars and coins, especially here in the States.
It’s especially significant that consumers in China and India, ordinarily the strongest physical gold buyers in the world, backed off purchases due to price sensitivity, supply constraints in China, and a jewelers’ strike in India (In India, too, a dip in demand isn’t unusual this time of year; a lull before the late summer holiday gold-buying sprees). This means those first quarter figures were driven principally by investment demand and purchases by central bankers, for whom diversification from fiat currency remains a top priority. As the WGC report emphasizes, “There is little doubt that central banks’ enthusiasm for gold remains resolute.”
The effect of negative interest rates in Japan and Europe, China’s devaluation of the yuan, and the sluggish pace of rate hikes in the U.S. all played a key roles in the in the first-quarter gold surge. As the report stresses:
“The swirling uncertainty created by this mix of factors undermined confidence in traditional asset classes.Turbulence hit stock markets around the world. The impact of NIRP [negative interest rate policy] in particular significantly reduced the appeal of sovereign bonds as a stable, low-risk asset.”
One thing’s clear: As a private investor looking to protect your nest egg from the ravages of an uncertain economy, one that’s freaking out even the most jaded professional and institutional investors, you’ll have plenty of company if you invest in physical gold.
You may take your cue from the World Gold Council report; or the fact that last Friday’s ugly jobs report caused the price of gold to catapult thirty-seven dollars in one day; or from Janet Yellen’s never-ending game of chicken with interest rates. But you can’t argue the piling-on of risk factors aimed right at your portfolio, and your retirement.
You can’t be certain you’ll never have an auto accident, so you buy auto insurance. Similarly, you can’t be certain about the world economy, or our own. The list of things over which you don’t have control is dauntingly high. But there is one thing you do control, and that’s how much of your retirement you trust to markets and strangers, and how much you personally command.