What Can Investors Expect from Gold Prices in 2018?

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Part 8
What Can Investors Expect from Gold Prices in 2018? PART 8 OF 10

Physical Gold Demand Hits a 9-Year Low

Physical gold demand hit

According to the World Gold Council (or WGC), the demand for physical gold in 3Q17 was at its lowest point since 3Q09. In 3Q17, the demand was down 9% year-over-year (or YoY).

The related ETF holdings increased just 18.9 tons in 3Q17 compared to growth of 144.0 tons in 3Q16. Jewelry demand was down 3.0% to 479.0 tons. This was also the lowest 3Q jewelry demand on record.

Physical Gold Demand Hits a 9-Year Low

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China’s safe-haven buying

China’s gold consumption has risen in 2017 after a lackluster 2016. The fears of the potential depreciation of the yuan, rising inflation, and restrictions on property market investments have steered Chinese investors toward gold. However, China recorded 13.0% growth in jewelry demand in 3Q17.

India’s gold demand

In general, gold demand in India took a hit after the government’s demonetization move as well as the newly introduced goods and services tax. According to the GFMS (Gold Fields Mineral Services), India’s gold demand in 4Q17 could fall 25% YoY. The key reason for this decline is the weaker demand during major festivals.

The country’s gold imports rose 131.0% to 638.4 tons in the first nine months of the year as jewelers advanced their purchases in 1H17. The sales tax hike took effect at the start of 2H17.

According to the provisional data from GFMS, gold imports fell 10.0% YoY in October to 75 tons. The performance of riskier assets such as equities is also keeping some investors away from gold.

Gold jewelry purchases by the world’s two largest consumers—China and India—usually support gold prices (GLD). The weaker demand outlook from these countries could lead to a short-term pullback in prices.

This pullback could lead to weakness in the stock prices of companies such as Goldcorp (GG), Randgold Resources (GOLD), Hecla Mining (HL), and Franco Nevada (FNV). These stocks are trading at $12.10, $90.40, $3.50, and $78.20, respectively.


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