Gold investment remains resilient, WGC report shows

Despite some softness in some areas of the market, the World Gold Council’s (WGC’s) ‘Gold Demand Trends’ report for the second quarter, released on August 1, shows that investment demand has shown resilience, while fabrication demand faces challenges owing to high prices and affordability concerns among consumers.

The WGC’s projections for investment in the current financial year remain unchanged, thanks to robust over-the-counter (OTC) demand compensating for sluggish performances in exchange-traded funds (ETFs) and bar and coin investments, the council notes.

As the year unfolds, the WGC expects global gold ETFs and OTC demand to take precedence over traditional bar and coin demand.

Several factors contribute to this shift. Interest rates are expected to peak at levels that do not pose restrictions for gold investors, making the yellow metal an attractive option.

Meanwhile, slower economic growth is expected to rein in lofty equity valuations, prompting investors to seek safer havens such as gold. Negative sentiment and under-allocation in certain portfolios are also fuelling higher institutional involvement in gold.

Finally, lower inflation means that retail investors are finding gold’s allure diminished compared to other periods, the WGC report outlines.

Fabrication demand, however, has faced a minor downward revision owing to high gold prices and affordability concerns among consumers. The rising prices have prompted some consumers to reassess their purchases, impacting fabrication demand.

Nevertheless, the jewellery and technology sectors have maintained steady interest in gold, which partly offsets the overall softness in fabrication demand.

The positive trend of central banks adding to their gold reserves is expected to continue, bolstering the demand for the precious metal. However, the WGC has made a slight downward adjustment to its central bank estimate for the current financial year, taking into account a weak second-quarter performance.

On the supply front, the WGC report indicates that mine production is gearing up for a record high, contributing to the overall supply increase.

Source: Mining Weekly