Could Buying from the East Buoy Precious Metals?



Central banks buying

India has now preceded China in Gold demand. According to the GFMS (Gold Fields Minerals Services) data, India’s jewelry consumption climbed in the third quarter of 2015. It saw a rise of almost 5% from the previous year. The demand patterns from the Eastern countries like India and China look hopeful. Also, the central banks into gold buying seem to have buckled up.

Developing nations

Developing nations wishing to diversify their foreign reserves are opting for gold. It’s a trend that may continue, especially if China and Russia continue their programs of buying gold at the current pace. The chart above is for 2Q15 gold buying by several countries. The third quarter, however, seems dominated by India.

What could buoy precious metals?

The Fed’s indication of raising the rates is a factor that’s influencing the prices of all the precious metals. The fall in precious metals has been triggered by the Fed’s indication of hiking the interest rates in the month of December 2015. However, the only crucial element that could buoy the prices of these precious metals is a possible rise in demand from the Eastern countries and the world’s central banks.

However, the much-anticipated move by the Federal Reserve has most likely been priced into the precious metals for now, and a reversal of the elongated fall in prices seems to be on the cards. The bearish outlook for gold may pertain, but a temporary price reversal can be expected.

The ETFs that have followed the price movement in precious metals include the ProShares Ultra Silver ETF (AGQ) and the VanEck Vectors Gold Mines ETF (GDX). These two ETFs fell 10.7% and 10.2%, respectively, on a trailing-30-day basis. In case we see a rise in the prices of precious metals, these ETFs may also follow the positive returns.

The mining companies that witnessed a loss in their prices due to falling precious metals include Newmont Mining (NEM), Royal Gold (RGLD), and Sibanye Gold (SBGL). These three companies together determine 12.2% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).

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