Despite only a gradual increase in prices over the past two years or so, gold demand for investment purposes is set to rise yet again in 2018.
If so, it would be the fifth consecutive year of rising investment demand (i.e. coins and bars) for the yellow metal.
Gauging Gold Demand Around the Globe
For starters, the total market capitalization of all the world’s gold is a staggering $8.25 trillion. This not only makes the market highly liquid but also attracts considerable inflows from investors that range from retail (small) to institutional (very large) in size.
The projection for a fifth annual rise in a row of gold investment demand comes from CPM Group, an independent asset management research firm based in New York that focuses on commodities and especially the precious metals. The report was picked up by Reuters this week.
A significant portion of contemporary gold demand is absorbed by relatively new investment products like gold ETFs (exchange-traded funds).
Although ETF shares don’t offer the same protections as physical precious metals, they are attractive to some investors due to their convenience. ETFs make the process of speculating on the gold price almost indistinguishable from trading securities like stocks.
By the end of March, gold ETFs saw inflows of 22.5 metric tons of gold, or the equivalent of about $1 billion of funds. Collectively, these ETFs now hold 2,415 tons (valued at over $100 billion).
Shift in Buying Preferences
Aside from gold ETFs, certain central banks have also been heavy buyers of bullion for their foreign exchange reserves in recent years.
The central banks of China and Russia, for instance, have each continued to accumulate gold reserves at a rapid pace. Gold held by the Russian state is at an all-time high of over 1,850 tons, and the national bank has increased its stockpile every month for about three years.
Meanwhile, the People’s Bank of China has been at least as aggressive in stacking up gold, although many insiders believe it purposely under-reports how much gold it has to keep prices low while it is making purchases.
Russia ranks fifth in the world in gold reserves, while China is officially right behind in sixth place.
This trend of aggressive gold-buying in the East (especially if India is included) has persisted even as new production from major gold mines has struggled to increase.
Between these major institutions and everyday investors, a shift in tastes has apparently taken place.
Demand for government-issued gold and silver coins, while still historically strong, has undeniably waned from its record-highs from the first half of this decade. Demand for American Gold Eagle coins was well down from the same period a year ago, which saw relatively weak sales as it was. Bullion coin sales are at their slowest pace since 2007.
With overall investment demand for gold on the rise, however, this means that gold bars are making up a larger proportion of the money flowing into gold than in the recent past.
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.