Third quarter demand
According to the GFMS (Gold Fields Minerals Services) report, physical gold demand witnessed a rise of almost 7% in 3Q15. The rise in demand in the third quarter is primarily due to the fall in local gold prices—the lowest level since August 2011. The improvement in gold demand during the third quarter was likely driven by factors like a delay in raising the interest rates by the Fed during September. Also, the precious metals probably answered the safe-haven calls, as the equity markets remained uncertain. It’s important to note that China spooked the markets when it devalued its currency in August.
The above chart shows the price for gold and the S&P Goldman Sachs Commodity Index. The index tracks a total of 24 commodities including gold and silver.
India was the top buyer
According to GFMS, India regained its position as the world’s biggest gold consumer from China in 2015. India’s overall consumption was 642 tonnes while China lagged behind at 579 tonnes. China is trailing by just 63 tonnes in the total consumption over the past nine months. The sharp correction in the gold price in July backed the demand growth in the East. Jewelry demand contributes a considerable portion to the overall demand. It rose by half a percent YoY (year-over-year) in China. In contrast, India’s jewelry demand rose 5%.
A rise in the demand for gold is likely a positive indicator. It can give gold’s price a push. Since gold investors are eagerly waiting for the Fed to take a stance on the rate hike scenario, the bullish sentiment on precious metals is growing. ETFs like the Sprott Gold Miners ETF (SGDM) and the VanEck Vectors Gold Miners ETF (GDX) could see their prices rise. Mining companies that could see added growth in the pricing include Sibanye Gold (SBGL), Newmont Mining (NEM), and Yamana Gold (AUY). These three companies account for 11.8% of GDX.