浙江之源资产评估有限责任公司
The World Gold Council’s continuously diverse demand is boosting the gold market.
Release time:
2013-06-06
Source:
According to statistics from the World Gold Council, in the first quarter of 2012, holdings of gold exchange-traded funds (ETFs)—which accounted for 6% of global gold demand—declined by 177 tons. Meanwhile, inflows of physical gold, such as gold bars and coins, helped stabilize overall gold demand.
“As the U.S. economy improves, demand for gold jewelry has ended its three-year consecutive decline and started to grow in the first quarter of this year, which is positive for the gold market,” said Chen Weixian, Head of Investment for China at the World Gold Council, on May 28 at the “10th Shanghai Derivatives Market Forum.” He added that the growing demand for gold in Asia, central banks’ increased gold holdings, rising gold investments, and the importance of allocating gold assets will all continue to support the gold market.
Chen Weixian first presented a series of data illustrating the factors influencing the supply-demand relationship in the gold market in 2012. Among the demand factors, gold jewelry accounted for nearly 43%, investment accounted for 36%, central bank gold purchases accounted for 12%, and technology-related investments accounted for nearly 9%. As for supply factors, mineral production accounted for 63%, while recycled gold accounted for 37%. Chen Weixian believes that by analyzing the changes in the structural composition of supply and demand in the gold market, we can gain insights into the market’s future trends.
On the supply side, he noted that gold mine production over the past decade has remained roughly stable. Although gold prices have risen five or six times, the volume of mined gold has not increased significantly, staying consistently between 2,500 and 2,800 tons.
However, demand continues to rise. Gold demand from China and India is a key factor influencing the gold market, accounting for a combined 49% of global gold demand. According to statistics from the World Gold Council, in the first quarter of 2013, China’s demand for gold jewelry reached 184 tons, an increase of 18% year-on-year; India’s demand for gold jewelry was 159 tons, up 15% over the same period. Chen Weixian said that in the second quarter, affected by the sharp drop in gold prices, demand for physical gold is expected to surge significantly. “The unique gold cultures of these two countries, coupled with their continuously growing economic conditions, will ensure very strong gold demand in the Asian region,” he predicted.
Meanwhile, since 2009, central banks have become strong net buyers of gold. As of the first quarter of this year, central banks have been purchasing more than 100 tons for seven consecutive quarters. He predicts that central banks’ gold-buying activities will continue. In Chen Weixian’s view, the persistent decline in gold ETF holdings—a issue that gold analysts cannot afford to ignore—will not truly affect the overall trend of the gold market. According to statistics from the World Gold Council, in the first quarter of 2012, holdings of gold exchange-traded funds (ETFs), which accounted for 6% of global gold demand, fell by 177 tons. However, the inflow of physical gold—such as gold bars and coins—will help keep overall gold demand stable.
He observed that many international institutions, including Japan, are now increasing their investments in gold—for instance, the Okayama Metal Machinery Pension Fund in Japan has entered the gold market. Moreover, gold is playing an increasingly important role in the financial system: for example, the London Clearing House, the Intercontinental Exchange in the U.S., and the Chicago Mercantile Exchange all accept gold as collateral; Turkish commercial banks hold gold as reserve assets; and Russian banks issue bonds backed by gold as collateral—all of which are boosting demand for gold.
In addition, he noted that investment institutions and individuals have now come to recognize that diversification and risk management are key to portfolio construction. As an asset-allocation tool, gold has a relatively low correlation with other asset classes, which can help reduce the volatility of investors’ portfolios and effectively optimize their overall allocation. Research indicates that the optimal allocation for gold falls between 2% and 10%. Based on this ratio, there remains considerable room for demand for gold.
“If you’re looking to adjust your portfolio and increase the allocation to both stocks and bonds, you should also raise your gold holdings,” said Chen Weixian. “We believe that demand from the Asian region, central banks, and investors will continue to support this market. Currently, market demand is highly diversified. With supply remaining limited, the market structure—favorable to gold—will keep providing strong support for the gold market,” Chen Weixian added.
Source: China Gold Net
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