Gold Market Overview from GFMS

November 3rd, 2015 by

gold_sovsAs the calendar turns to the fourth quarter of 2015, it’s useful to look at how the gold price performed during the third quarter for some insight on what to expect as the year rounds out.

Ross Strachan is the Precious Metals Demand Manager for GFMS, a division of Thomson Reuters. In a recent interview with MineWeb.com, he gives a broad outlook of what influences the gold market is responding to, what we can take from the third-quarter performance for the metal, and what to expect through the rest of the fourth quarter.

Here’s a brief run-down of his insights summarized below.

Evaluating Q3

The third quarter was a solid bounce-back period for the precious metals. The recovery followed a sluggish first half of the year not only in terms of price movement, but also due to disappointing demand from both India and China during H1.

Gold buying in China got a lift from the Qixi Festival, better known as the Chinese Valentine’s Day or the Double Seventh Festival. (The celebration falls on the 7th day of the 7th month of the Chinese Lunar calendar.) Like Valentine’s Day in the West, the holiday is a fairly big boost for gold jewelry sales. This year, the festival fell during Q3 in late August.

Demand Dynamics

If nothing else, lower prices helped spur greater gold buying during the third quarter. Even as jewelry sales were essentially flat year-on-year, there was solid growth in retail demand (the buying of gold coins and bars, i.e. investment purposes). All over the world, retail gold purchases spiked back up from their largely dormant levels during Q2.

china-goldChina again played a profound role in the gold market last quarter as price discovery continues to shift gradually from the West (with the COMEX futures market largely dictating prices) to Shanghai and the East. With the dramatic correction of the Shanghai Composite stock index during Q3, many Chinese investors turned back to purchasing gold as a safe haven. This was somewhat mitigated, however, by others covering their losses in equities by selling gold.

The other influencing factor is, of course, whether the Federal Reserve raises interest rates in December. While GFMS doesn’t see this coming to fruition, the uncertainty could provide safe-haven support for gold prices.

Expectations for Q4

Strachan cites two major developments as positive for gold demand in the fourth quarter: the upcoming Chinese Lunar New Year and the traditional festival season in India.

We hear a lot of about China and India when it comes to global gold demand, but for good reason. Both countries dwarf the rest of the world in their annual gold demand (each around 1,000 tonnes per year), meaning that dynamics in these countries have a disproportionate impact on the market for gold in general. Especially after a weak first half and a prolonged period of gold prices hovering just above six-year lows around $1,100 per ounce, GFMS’s outlook for gold in Q4 is one of resiliency.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.