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Gold Demand Is Waning: What Investors Can Expect

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Impending rate hike is weighing on gold

Even in the wake of the economic and financial uncertainty surrounding Greece (GREK) and China’s (MCHI) equity markets, the demand for safe-haven assets, like gold, remained quite weak. This has mainly to do to the impending rate hike by the Fed. After a rate hike, gold’s investment appeal will fall. This leads investors towards other safe-haven assets, including the US dollar and sovereign debt.

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US dollar strength

As we discussed previously in this series, the US dollar is gaining strength. The outlook for the US dollar also remains positive—considering the divergence between the monetary policies of the US and the rest of the world after it starts raising the interest rates. The recent spate of data in the US has been more or less positive for the US economy and for the US dollar. A strengthening US dollar is usually negative for gold.

Physical gold demand is waning

When gold prices fall through the roof, the physical gold buying—particularly by China and India—comes to its rescue. This was the case in 2013. However, this time around, things don’t seem to be that simple for gold. On one hand, gold ETFs are dumping gold while the physical buying from China and India remains lackluster. As we’ve discussed previously, the outlook for gold demand in India is expected to remain weak due to weaker monsoons and a lack of festivities.

All of the above factors point to rising pressure on gold demand going forward. This will be negative for gold prices (GLD) as well as gold equities like Newmont Mining (NEM), New Gold (NGD), and AngloGold Ashanti (AU). New Gold forms 1.90% of the VanEck Vectors Gold Miners ETF (GDX).

For the latest updates, visit Market Realist’s Gold ETFs page.

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