Sun, Sep 21, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Volatile and jittery markets push investors towards buying gold

Thursday, December 08, 2011
The investment team at Edmond de Rothschild Asset Management behind the investment in gold, Emmanuel Painchault and Raphaël Dubois have reported on the volatile third quarter this year for the gold price.

Beloved by investors everywhere in times of crisis, gold went up from $ 1,500 /oz in early September to a new nominal high of $1,921.15 /oz before then sliding back down again to close the quarter at $ 1,620 /oz.

“These swings, on top of the strong rise in the average price (+39.0% y/y) hit jewellery demand (-10.7% y/y), particularly in India (-26% to 125.3t) where the surge in the gold price was aggravated by a depreciation in the Indian rupee. It is worth noting, however, that Indian jewellery demand is up 5% over the last 12 months” their report says.

The team believes that the third quarter decrease in the price of gold is temporary and reflects what they call ‘a necessary adjustment to new price levels’.

Quarter three saw China overtake India as the largest jewellery market with 139t (+13%). “The two countries together accounted for 55% of global jewellery demand. In the rest of the world, jewellery demand declined by 12%”.

However, weakness in jewellery demand was more than offset by strong investment demand (+22.5%). “More and more retail and institutional investors appreciate the wealth protection and risk diversification gold provides not to mention the fact that it has turned in positive performance for 12 quarters in a row. Investment demand has been driven by the European sovereign debt crisis as well as S&P’s move to downgrade the US debt rating. This has all led to deteriorating confidence in governments and traditional currencies” the report says.

Retail demand and gold ETF saw strong growth over the period with retail demand for bars and coins up 28.9%. “The investment case in the East seems to be predicated on high inflation whereas in the West it has more to do with protection and diversification.”

Geographically, in Europe, Germany saw the fastest growth with an increase of 146% representing some 59.3t of bar and coin investment over the quarter. “To say that the Germans are worried about the euro is clearly an understatement!” the report says.

Central banks made a big commitment to gold over the quarter purchasing 148.4 tonnes. “This dwarfs amounts seen in the recent past and contrasts sharply with their role as net sellers up to 2009. Central banks with surplus reserves are, like investors, looking to diversify away from the USD as they tend to be loaded down with US treasury bonds yielding negative real returns. Russia, Bolivia and Thailand were amongst the most active central banks, but their combined purchases fall well short of the 148.4 tonnes bought over the third quarter. It would appear that some central banks requested their purchases remain anonymous. Due to the size of the purchases and the unwillingness to declare it, we can assume that China is behind this additional buying.”

A structural trend is revealing central banks as a material source of demand on the gold market after many years of acting as a source of supply. “This trend is structural and is likely to persist in a low interest rate environment where currencies are of dubious value.”

Looking at supply, recycling has been the main contributor to rising supply (+12.5%) And mining production was surprisingly strong (+5% to 746 tonnes). However the team warns that it will take a few quarters of continued strength to make them change their long held view that this supply component is unlikely to surprise positively.

Beverly Chandler, Opalesque London

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. SEC charges 19 investment firms and one trader for breach of Rule 105[more]

    Benedicte Gravrand, Opalesque Geneva: The Securities and Exchange Commission (SEC) started a push to enhance the enforcement of Rule 105 of Regulation M last year to uncover hedge funds and private equity firms that have illegally participated in an offering of a stock after short selling it duri

  2. Fund managers, bullish on Europe, anticipate monetary policy separation of Fed and ECB[more]

    Komfie Manalo, Opalesque Asia: At least 202 fund managers with $556bn of assets under management said that while the European Central Bank (ECB) has eased its monetary policy that sent sentiments towards Europe to pick up, the Fed is expected to hike its rate in the spring of 2015. Investor

  3. Institutions - North Carolina workers call on state pension to dump up to $6bn in hedge funds, UK pension fund criticizes hedge fund fees[more]

    North Carolina workers call on state pension to dump up to $6bn in hedge funds From Forbes.com: The State Employees Association of North Carolina this afternoon called on state Treasurer Janet Cowell to withdraw all investments in hedge funds, which appear to amount to approximately $6 b

  4. News Briefs - Limited partners of investment managers may be subject to self-employment taxes, Just one week left until NYC's Rocktoberfest[more]

    Limited partners of investment managers may be subject to self-employment taxes On September 5, 2014, the Internal Revenue Service (“IRS”) issued Chief Counsel Advice 201436049, concluding that members of an investment manager were subject to self-employment taxes with respect to their e

  5. Institutions - Adviser's faith in hedge funds unshaken by CalPERS' move Advisers weigh in on CalPERS’ decision, Gina Raimondo sees no reason to follow California’s lead, exit hedge funds, Danish pension funds step up 'alternative investments'[more]

    Adviser's faith in hedge funds unshaken by CalPERS' move From WSJ.com: Financial advisers who use hedge funds in their clients' portfolios say they aren't rethinking that approach after a huge California pension fund announced plans to exit the hedge-fund market. The decision by the Cali