To examine the gold market, you must pay attention to the big buyers. Don’t listen to the noise that suggests the precious metal is “useless.” Gold prices may be down and out, but the major buyers remain resilient.
Three Buyers Disregarding Gold Price Completely
We continue to pay attention to three main buyers; India, China, and central banks. These three buyers have been nothing but exceptional with their precious metal buying.
Take India for instance; in the month of August, $4.95 billion worth of gold was imported into the country. In the same period a year ago, this figure was just $2.06 billion. Simple math will tell you that Indian demand for the precious metal increased 140% year-over- year. (Source: India’s Ministry of Commerce & Industry, last accessed September 21, 2015.) Mind you, we have noticed similar figures coming out of India in previous months as well. This is not a one-time event.
China’s gold buying is worth mentioning, too. In July of this year, 55.06 tonnes of gold were imported into China from Hong Kong alone. In June, gold imports into the country were 37.14 tonnes. This represents an increase of over 48% month-over-month.
According to the World Gold Council, China’s demand for gold is expected to be around 1,000 tonnes this year. (Source: Reuters, August 25, 2015.) What you have to keep in mind is that China is the biggest gold producer in the world. It consumes its own local supply, and then imports from outside. This should tell you the appetite for the precious metal in the country.
Central banks are raking in significant amount of the yellow metal as well. The second quarter of 2015 marked the 18th consecutive quarter when central banks purchased the precious metal.
Their buying still continues. Keep in mind that gold purchases will come from emerging markets and smaller central banks. The major central banks like the Federal Reserve and the European Central Bank (ECB) already have huge sums of it in their reserves.
That said, consider this: in July, the Russian central bank purchased about 30 tonnes of gold bullion. It was the highest amount in six months. Russia has been continuously buying gold. It now has the sixth biggest hoard of gold. (Source: Bloomberg, September 18, 2015.) There are several other smaller central banks that have been buying gold bullion continuously.
Looking at all this, we are asking; do these three buyers really care about the price of gold? Their actions say not at all.
Why Gold Buying Could Increase
You see, after the decline in gold prices in 2013, investors shunned gold. They bought into the mainstream narrative that the yellow metal isn’t worth holding.
Now with volatility and uncertainty in the global economy increasing, other regions around the world are slowly starting to see demand pick up.
One way to assess their demand is to look at sales at different mints around the globe. Gold demand looks solid from this perspective as well. For instance, take the U.S. Mint; it has sold 638,000 ounces of gold in American Eagle coins. This number is already exceeding the entire year of 2014 figures. (Source: U.S. Mint, last accessed September 21, 2015.)
We have heard about demand increasing at other major mints as well.
Here’s something investors must also pay attention to: volatility in the currency markets. Expect wild fluctuations.
There’s a significant amount of speculation regarding the Federal Reserve raising rates. Elsewhere in the global economy, the trend with monetary policy is the complete opposite. Countries are cutting interest rates and contemplating printing. For example, China is working to devalue its currency and has thus lowered its interest rates several times. The ECB is printing money, too.
With this, don’t be shocked if smaller central banks follow the same direction as well. With that, they’d lower their interest rates and outright print. If major economies are printing money, smaller nations’ currencies will rise in value. This phenomenon hurts their exports. To remain competitive, they might be forced to print.
And this could all be great for gold bullion!
Where Could Gold Price Go in 2016?
At this point, looking at the developments in the gold market; it is important for investors to at least pay attention to the yellow metal. There are solid foundations being built currently, suggesting the move to the upside could be very big.
For the rest of 2015, it will not be surprising if gold prices remain the current trading range. I am looking ahead into 2016. It could be a very interesting year, and may be the first year since 2013 when gold prices show a positive return.