Friday, November 17, 2017

Will the Gold Price Pick Up Again in 2018?

by: Johann Wiebe / - 

 Photographer: Umit Bektas

A gold price below US$1,300 per oz in Q3 reflected soft demand from Asia and weak investment appetite. The Thomson Reuters GFMS Gold Survey looks at the outlook and whether the price will recover next year.

In September, the gold price rose to its highest level for 13 months following an escalation in rhetoric and actions on the Korean Peninsula.

However, a gold price of $1,351 per oz proved too much for major Asian and Middle Eastern markets as well as for modest Western investor demand. The eventual correction back below $1,300 per oz was unsurprising given that prices had moved too far and too fast.

But the price spike did result in physical demand slipping compared with the prior quarter. While up 7 percent year-on-year, the level of demand was some 22 percent lower than two years earlier. As a result, the gold market recorded its largest net balance surplus since Q4 2005 of 230 tonnes, when prices averaged just $483.

Alongside the Korean developments, other factors occupying the market’s attention have been India’s Goods and Services Tax and the Federal Reserve’s unwinding of quantitative easing and possible interest rate hike in December.

The Thomson Reuters GFMS Gold Survey Q3 update and outlook report has taken a closer look at these and other factors and what they mean for the market.

The Big Gold Consumers

China was a significant contributor to poor demand this year.

Its figure for jewellery was down 2 percent over the first three quarters to 459 tonnes year-on-year, driven by retailers’ focus on lower carat and higher margin products.

Retail investment in bars and coins was just as weak, with the largest casualty being the coin sector dropping 65 percent year-on-year over the first three quarters to 7.7 tonnes.

 Bar demand also fell, by 12 percent to 153 tonnes, as Chinese investors decided to sell when the gold price retraced below $1,300/oz.

Meanwhile in India, gold demand in Q3 increased by 16 percent year-on-year to 167 tonnes, the lowest in four quarters.

Contrary to expectations that demand would slow after the imposition of the Goods & Services Tax, jewelry fabrication increased by 30 percent year-on-year — albeit against a lower base last year.