GOLD ANALYSIS

US investment demand gold's current key swing factor - WGC

In the footrace between Chinese and Indian demand on the one hand and Central bank and Investment buying on the other, US investors remain the wild card.

Author: Geoff Candy
Posted: Monday , 20 Aug 2012

GRONINGEN (MINEWEB) - 

For the second half of 2012, European and US investment demand for gold will be the swing factor in deciding whether or not the year is a good one for the yellow metal.

Speaking to Mineweb.com's Gold Weekly Podcast, Marcus Grubb, MD for Investment at the World Gold Council, said, "At the half year if you look at it across all the categories it is something of a footrace here now between India and China on the one hand, central bank buying and investment on the other, and I think that is the key really to how the second half will evolve."

As Grubb points out, India is likely to have a fairly weak second half to the year, despite the forthcoming festival and wedding season which is traditionally a strong time for the metal. While it will be a seasonally better performance than the first half, persistently high rupee prices and a fairly poor monsoon, don't bode well for the second half of the year.

"Monsoons are less strong than in previous years, probably down 20% maybe a bit less. The latest news is a bit better, but still, it does imply that private farm incomes will be some 10% or more below the last year's levels which will feed into gold demand."

Grubb says Indian demand is expected to come in at around 750 tonnes for the year, some  25% less than 2011. That tonnage has to be made up from other sources and, while central bank buying is more than pulling its weight and China is contributing strongly as well, it is investment demand that is likely to be the wild card.

Europe has already demonstrated quite a lot of strength this year, says Grubb, "and it's continuing in the latest ETF figures even in July and August. I think the big question is whether the US investor joins the party in the second half of the year and whether or not these huge macro questions about the financial system, the US election, the fiscal cliff and the eurozone crisis - what happens with those issues and whether or not it leads to increased gold demand."

How has the US been performing?

According to the group's Gold Demand Trends Report for the second quarter of 2012, US bar and coin demand, slipped 27% year-on-year to 14.4 tonnes in a move the report says is largely price related.

But, as Grubb points out, while US investors haven't been adding to their positions, they haven't been selling their stock either.

"If you look at the pick-up in ETF tonnages that has occurred, and so far this year is a pretty good year for ETFs despite this quarter. At the half year net new assets under management in ETFs is up 52 tons compared to the first half of last year which was down about seven tons."

He says more clarity is needed in North America about the state of the macro economy and what will happen to the so-called, fiscal cliff, "I suspect you may see US investment demand for gold reignite again. But that is a big question mark."