Demand for gold during the second quarter of 2016 declined across the board, except for demand from only one source – which now accounts for more gold demand than another other source. One continent accounts for more than half of total consumer demand for gold. And three countries that you probably wouldn’t guess accounted for the biggest growth in gold demand.
We’ve written a lot about gold (our free report on why every investor should own gold is available here). But here are three facts about gold today that you probably don’t know.
Everyone wants less gold – except investors
Demand for gold comes from four main sources: jewelry, technology (mostly for electronics), investment, and central banks and other big institutions.
During the second quarter of this year (beginning of April to end of June), demand (in terms of volume, rather than in terms of value) fell in three of these categories. Jewelry demand fell 14 percent compared to the year before. The technology sector required 3 percent less, and central bank demand dropped 40 percent. This makes sense – when prices rise, demand declines.
The big exception to this is investment demand, which was up 141 percent compared to last year. Over half of this stemmed from demand for gold ETFs. For the last three months of 2015 (before the current rally in gold started), ETFs were a drag on overall gold demand. In the most recent quarter, though, investment accounted for 43 percent of total gold demand.
This also means there’s a built-in hedge for gold. If prices fall, investors may start losing interest – but demand from jewelry sales and the technology industry will likely increase. This would in turn help stabilise prices.
Japanese, British and U.S. consumers are buying a lot more gold
During the second quarter of this year, the biggest growth in consumer demand for gold came from Japan, the U.K. and the U.S. And for very good reason.
The 163 percent growth in Japanese consumer demand for gold (which includes gold jewelry, plus gold bar and coin purchases by individuals – but not other types of investment) comes down to one thing – Abenomics, the Japanese prime minister’s economic policies.
In an effort to stimulate the Japanese economy (again), Prime Minister Shinzo Abe introduced negative interest rates in January. This has driven down the yields on Japan government bonds to the point where 80 percent of them now offer a negative yield. This means that owning them is a guaranteed way to lose money.
But Japan is a nation of savers. And one of their favourite ways to save is government bonds. Since buying these will now mean they lose money, more investors have turned to gold in recent months.
Despite the rise in demand, Japan’s absolute demand for gold is still quite small compared to that of other countries. Last quarter Japan’s absolute demand for gold (in tonnes) was only 5 percent of demand coming from China.
The U.K. had a 20 percent jump in demand since the second quarter of last year. The Brexit vote created enormous uncertainty, and a sharp fall in the British pound. It’s exactly those sorts of situations where people tend to want the security of gold.
Meanwhile, the U.S. is going through one of the most controversial presidential elections in history. (We’ve already discussed how a Trump presidency could affect gold prices.) Plus, a lot of people are convinced that the value of the U.S. dollar will erode. Like Japan and the U.K., this has lead to growing interest in gold as a universally recognised store of value.
Asian consumers still buy more gold than anyone else
Consumer demand for gold fell in the world’s two most populated countries, India and China, which are also the biggest consumers of gold. Demand in India fell 18 percent since the second quarter of 2015, and it fell 14 percent in China. Still, China and India combined still accounted for 45 percent of total consumer demand.
When demand elsewhere in Asia is included, the continent accounts for 58 percent of global consumer demand for gold.
Plenty of reasons to own gold
We’ve written at length about why the price of gold is likely to continue to rise – perhaps a lot – in recent months. Gold is good portfolio insurance, and it’s a great hedge against the degradation of fiat (that is, paper) currency by the world’s central banks. It’s not correlated to most other assets. And just now, it’s also a good investment (it usually isn’t).
See our free report – everything you need to know about gold, along with a few of the best ways to buy it – here.