Gold Demand Still Robust

May 25th, 2016 by

Source: Bloomberg

Source: Bloomberg

For the most part, 2016 has seen a significant rise in gold demand around the world. This trend has certainly slowed in recent weeks as we’ve seen spot gold prices slip to new 7-week lows. Nonetheless, investors are motivated to “buy on the dips” with lower prices while, according to both expert opinions and the data, demand remains strong in the bullion coin market.

Gold Market Pulling Back

Except for silver, the precious metals were trading modestly lower on Wednesday morning. This was partly influenced by renewed optimism in the stock markets due to firmer crude oil prices. If these level hold through the closing bell, spot gold will have notched its sixth straight losing session.

interest ratesIn general, traders are taking a bit more bearish perspective on the bullion market. Two major themes seem to underlie this trend. First, the U.S. dollar has been creeping higher of late against its peer currencies around the world. In virtually every case, a climbing dollar spells lower prices for the precious metals. Second, the Federal Reserve has been making overtures to the markets to project the image that the FOMC is close to raising interest rates, whether this happens at the committee’s June or July policy meetings.

The hawkish talk coming from the Fed is generally negative for gold in the short-term. Higher interest rates spell a stronger dollar, which typically eats away at gold’s momentum. However, especially with crude oil prices unlikely to maintain their current rally, we may well be seeing a temporary pullback in precious metals. Charalambos Pissouros, a senior analyst at IronFX Global, says that he still believes “the longer-term outlook remains cautiously positive” for gold.

At the same time, lower bullion prices and a commensurate drop in premiums have spurred some fresh buying in Asia as investors in the East decide to “buy in the dip.”

Investors Buy More Gold Coins

One trend that hasn’t changed at all so far this year has been the consistent level of purchases for government-issued gold coins. Recent data from the Austrian Mint revealed that the mint’s flagship Austrian Gold Philharmonic coins have been experiencing record-high levels of demand. Compared to 2015, the mint’s gold bullion sales are 45% higher year-on-year. Meanwhile, its silver sales rose by 57% over the previous year.

american-gold-eaglesSimilarly strong demand has been seen in the U.S. market for gold coins. In total, 406,500 troy ounces of gold coins have been sold by the U.S. Mint so far this year—more than double the 197,000 oz sold through the first five months of 2015. Interestingly, 80% of this year’s sales are made by the standard 1-ounce American Gold Eagle coin, the largest size offered by the mint. This would seem to indicate that investors are choosing to store considerable portions of their wealth in a tangible, safe-haven asset. In addition, American Silver Eagle sales continue on at their record pace, with nearly 22.8 million of the 1-ounce silver coins sold thus far.

 

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.