Central Banks Are Buying Gold As Investors Flee Gold

December 21, 2016

It has been a tough year to be a gold investor. The price of the yellow metal has whipsawed throughout the year on the back of changing interest rate expectations and political uncertainty. Indeed, as uncertainty grew throughout the first half of 2016 the price of gold pushed steadily higher from around $1,075 an ounce at the beginning of the year to a high of just under $1,400 an ounce after the Brexit vote.

However, over the past six months as uncertainty has faded and the global economy has surprised to the upside, the price of gold has collapsed, falling to a low of $1,136 an ounce at close on Friday.

As Investors Flee Gold Central Banks Are Buying 

According to HSBC investment demand for gold has also collapsed during the second half of 2016. The 84 global gold exchange traded funds tracked by the bank’s commodities analysts reported a decline in gold holdings of 3.9 million ounces during November, the highest monthly outflow since May 2013. The gold price declined by 7% in November 2016, compared to a 5% drop in May 2013. SPDR, the largest gold ETF globally, shed 1.9 million ounces of gold during November, contributing close to half of the total ETF outflows for the period. Still, on a net basis ETF buying for the year is 20.3 million ounces, the largest annual ETF gain since 2010.

Investors Flee Gold As Central Banks Are Buying

While investors were net sellers of gold during November, HSBC’s research also shows that central banks are gobbling up excess supply. The bank tracks gold holdings as reported in arrears by the International Monetary Fund’s International Financial Statistics on a monthly and annual basis with a focus on the top ten gold holders who represent c79% of global holdings. Per data from the World Gold Council, global central banks accumulated a net 33.7t of gold in October vs.13.7t in September, the highest since January 2016’s 35.5t. Russia was the largest buyer accumulating 40.4t, closely followed by Qatar at 6.2t and China at 4.04t. Russia remains the largest gold buyer in 2016, increasing gold holdings by c168.5t to date, and substantially ahead of China, which has accumulated c80.3t of gold so far.

Meanwhile, figures from the Shanghai Gold Exchange, which give an indication of the trends in physical demand for gold sales in China showed that trade volumes of the physical metal more than doubled month-on-month during November after Donald Trump’s win of the US elections. Monthly trading hit 1.5kt surpassing the previous record of 1.2kt printed after the Brexit vote.

Courtesy of http://www.valuewalk.com/

India and the U.S. trump Italy as top gold jewelry exporters.