Global turmoil brings perfect storm to gold

category:Finance
 Global turmoil brings perfect storm to gold


The central bank actively purchases gold, leading the gold market

Recently, according to data released by the Bureau of Survey and Statistics of the Peoples Bank of China, China continued to expand its gold reserves in July. By the end of July, Chinas gold reserves had increased by 9.95 tons, reaching 1936.5 tons, and it had increased its gold reserves for eight consecutive months since December 2018. Chinas gold reserves grew by 74 tons in the first half of the year, of which net monthly purchases increased slightly in the second quarter, bringing the average monthly purchases in the first half of 2019 to 12.3 tons from 11 tons in the first quarter.

In the second quarter of 2019, central banks around the world purchased 224.4 tons of gold. This led to a total of 374.1 tons of central bank purchases in the first half, which the World Gold Association said was the largest net increase in the worlds official gold reserves in the first half. Influenced by the recent sustained trend, more central banks joined the ranks of purchasing funds, mainly for emerging market countries.

According to data released by the World Gold Association in August, global central banksnet purchases in the first half of 2019 amounted to 374.1 tons, up 57% year-on-year, the highest level since central banks became net buyers in 2010 (in annual terms). Within six months, nine central banks have increased their gold reserves by at least one ton. This has continued the trend in recent quarters, with demand for more gold spreading among central banks in more countries, mainly in emerging markets.

Official gold reserves data show that as of June 2019, official reserves in the United States, Italy, Switzerland, Japan, India, the Netherlands, Taiwan, China and Portugal remained unchanged, while emerging market central banks continued to accumulate gold reserves at a steady pace. Russia, China and Kazakhstan remained the leading buyers in the first half of this year. Among them, Russias gold reserves increased the most from 2190.1 tons to 2207 tons in May.

Multidisciplinary Growth, Gold Market Trends

According to the statistics of the World Gold Association, the total demand for gold increased by 8% to 1123 tons in the second quarter and 1038.8 tons in the same period in 2018; the total demand for gold investment increased by 1% to 285.8 tons in the same period in 2018; the global demand for gold jewelry increased by 2% to 531.7 tons in the same period in 2018, and the total demand of central banks increased by 47% to 224.8 tons in the same period in 2018. Four tons, 152.8 tons in the same period in 2018; total gold supply increased to 1186.7 tons, compared with 1121.3 tons in the same period in 2018; recovered gold supply increased by 9% to 314.6 tons, compared with 289.8 tons in the same period in 2018.

Wang Lixin, managing director of the World Gold Association, believes that from this quarters data, central bank purchases have become the highlight of Chinas gold demand in the second quarter of 2019. Chinas gold reserves grew by 74 tons in the first half of the year, of which net monthly purchases increased slightly in the second quarter, bringing the average monthly purchases in 2019 to 12.3 tons from 11 tons in the first quarter. Reserve diversification and demand for safe and liquid assets are the main driving forces of central bank purchasing funds.

Gold Price Rises and New Development of Yield, Revenue and Supply

Gold climbed in June, surging above $1,400 an ounce for the first time since 2013, to its highest level in years. Gold prices in other currencies have risen more significantly. The main factors driving gold prices up in the current round include interest rate cut expectations and political uncertainty. At the same time, strong gold purchases by global central banks are also an important support for gold prices.

Global gold supply grew by 6% in the second quarter to 1186.7 tons. Driven by the sharp rise in gold prices in June, gold production reached an all-time high of 882.6 tons in the second quarter, while recovery jumped 9% to 314.6 tons. Overall, global gold supply reached 2323.9 tons in the first half of the year, the highest level since 2016.

In addition, global gold ETF holdings grew by 67.2 tons, reaching a 6-year high of 2,548 tons. Central bank purchases and steady net inflows of ETF have become an important driving force to support global gold demand in the first half of 2019. Indias gold demand also recovered strongly in the second quarter, rising by 12% to 168.8 tons, pushing global gold demand seasonally to a slight convergence. It increased by 2% over the previous year, totaling 531.7 tons.

In addition, currency depreciation helps to improve the profit margin of gold mining companies, weaker producer currencies help to lower non-dollar costs, boost gold production profits in major mining countries such as South Africa, China, Australia, Russia and Ghana, and the rising gold price (especially in the currencies of major producers) ) It still has more advantages, thus boosting profit margins and putting the industry in a fairly healthy position.

At the same time, with the rise of gold price in June, consumers are attracted by the promotion activities of gold jewelers, selling gold in succession, resulting in a significant increase in the supply of recovered gold in China year on year. Recent innovative development of Chinas gold repurchase market may also promote the increase in the supply of recovered gold.

Demand for gold is declining and the industry is slightly weak

While the market trend is good, the demand for gold is slightly declining. Consumersattitude towards gold purchase is still relatively conservative in 2018, which leads to a slight weakness in the industry and is not conducive to the development of the gold market.

According to the latest data of China Gold Association, the actual consumption of gold in the first half of 2019 was 523.54 tons, down 3.27% compared with the same period in 2018. Among them: 358.77 tons of gold jewelry, an increase of 1.97%; 110.51 tons of gold bars, a decrease of 17.29%; 2.90 tons of gold coins, a decrease of 29.27%, domestic consumption of gold jewelry continued to rise steadily, while demand for gold bars and coins declined significantly; the World Gold Association also indicated that investment demand was correspondingly weak, and China accounted for a decline in global demand. Due to the changing international situation, the demand for gold for science and technology also shows a downward trend, with the main eastern manufacturing centers in China (mainland China and Hong Kong Special Administrative Region) and the second quarter gold consumption in Japan falling by 5.3% and 4.0%, respectively.

In response, the World Gold Association said that despite the difficult situation in the last few weeks of the second quarter, the retail market continued to grow as leading brands expanded their networks and extended their tentacles to low-end cities. Consumers also continue to pay attention to the more innovative and harder high-end products developed by the industry in recent years, which to some extent reflects the efforts made by the gold jewelry industry in promoting these products with higher profit margins. Meanwhile, in the second quarter of 2019, as the central bank promised to keep the exchange rate stable, the exchange rate fears that underpinned the demand for gold investment in the past 18 months eased in May. China Gold Association also pointed out that under the background of global macroeconomic weakness and domestic economic restructuring, the gold industry actively responds to the requirements of high-quality development in the new era, deepens structural reform on the supply side, eliminates backward production capacity, optimizes industrial structure, integrates high-quality gold resources and promotes scientific and technological innovation. Source: China Responsible Editor of Securities Dealers: Yang Bin_NF4368

In response, the World Gold Association said that despite the difficult situation in the last few weeks of the second quarter, the retail market continued to grow as leading brands expanded their networks and extended their tentacles to low-end cities. Consumers also continue to pay attention to the more innovative and harder high-end products developed by the industry in recent years, which to some extent reflects the efforts made by the gold jewelry industry in promoting these products with higher profit margins. Meanwhile, in the second quarter of 2019, as the central bank promised to keep the exchange rate stable, the exchange rate fears that underpinned the demand for gold investment in the past 18 months eased in May.

China Gold Association also pointed out that under the background of global macroeconomic weakness and domestic economic restructuring, the gold industry actively responds to the requirements of high-quality development in the new era, deepens structural reform on the supply side, eliminates backward production capacity, optimizes industrial structure, integrates high-quality gold resources and promotes scientific and technological innovation.