The Daily Market Report: Gold Keeps the Pressure on the Upside

USAGOLD/Peter Grant/08-03-17

Gold has firmed intraday to keep pressure on the high end of the recent range. A weak dollar continues to offer a solid underpinning to the yellow metal.

The World Gold Council reported that investment demand, in the form of bars and coins, rebounded 13% in Q2 from low levels for the same period last year. Demand for the first half of the year was up 11%.

That’s encouraging, given that “ETF inflows slowed dramatically from last year’s record pace.” While the demand for paper gold has slowed, the price action remains constructive, helped by improving physical demand.

Jewelry demand has improving as well, from a weak 2016, driven primarily by India. Global jewelry demand rose 8% y/y, but Indian demand was up a whopping 41% between Q2-16 and Q2-17.

Central banks continue to be net buyers of gold. Official sector demand rose 20% y/y from 78.4 tonnes in Q2-16 to 94.5 tonnes in Q2-17.

Russia added more than 100 tonnes of gold to reserves in the first half of the year. The yellow metal now accounts for 17% of total reserves.

Turkey bought 21 tonnes of gold in Q2. IT was the “first significant addition to reserves since the 1980s.”

Commodity funds saw big outflows last week, as hopes for inflation continue to dissipate. This typically would weigh on gold, as nearly every commodity fund has a gold component. However, gold was up 1% last week, suggesting that those that bought gold in anticipation of reflation are already out of the market.

They buyers we see now are more worried about dollar weakness, disinflationary pressures along with political and geopolitical instability. Historically gold has performed very well in times of disinflation, stagflation and deflation.

See Black Swans, Yellow Gold: How gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation

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