'Perfect Storm' Forces Pushing Gold Prices Higher: TheStreet

TheStreet

Published on Aug 16, 2016

Gold investors are benefiting from a 'perfect storm' this year. And it is showing no signs of ending any time soon. 'There's a confluence of factors supporting gold,' said Juan Carlos Artigas, head of investment research at the World Gold Council. 'And there is no doubt it will remain a preferred asset by investors under the current conditions.' The yellow metal is up 26% year-to-date to $1,345 an ounce. Artigas said a weak Japanese bond auction on August 2nd unnerved markets with many analysts interpreting lackluster demand as a signal that investors are starting to lose confidence in the effectiveness of unconventional monetary policies, following increasingly desperate bids by the world's central banks to reflate the global economy. Artigas added that negative yields in Germany and Japan are also increasing the demand for gold. The case against gold has always been its lack of a dividend yield. However, the negative yields in those developed markets and rock-bottom rates in the U.S. precludes this argument. 'Lower opportunity costs and a more limited set of investable assets has, in turn, notably increased the lure of gold,' said Artigas. Meanwhile, gold backed ETFs have seen record inflows, adding 630 tons, or $25 billion, as of the end of July, bringing their collective global gold holdings to 2,240 tons, according to the World Gold Council. This is a substantial increase, but still 25% below their 2012 high. According to the World Gold Council, overall gold demand increased by 15% in the second quarter to 1,050 tons, up from 910 tons last year. Total consumer demand was 656 tons, down 9% compared to 723 tons in the second quarter of 2015. Global investment demand was 448 tons, up 141% from 186 tons in the same period last year. Breaking it down further, global jewelry demand fell 14% to 444 tons versus 514 tons in the second quarter of 2015, according to the World Gold Council. Central bank demand fell 40% to 77 tons, compared to 127 tons in the same period last year. Demand in the technology sector fell 3% to 81 tons in Q2 2016. Meanwhile, total supply was up 10% to 1,145 tons in the second quarter, from 1,042 tons in the same period last year. Mine production was virtually flat year-on-year at 787 tons, according to the World Gold Council.