Global Gold Demand Steadies

Latest research from the World Gold Council on global demand trends...

 

DIRECTOR of research at the World Gold Council's New York offices, Juan Carlos Artigas speaks here to Mike Norman at Hard Assets Investor about the market development organization's latest quarterly Gold Demand Trends report...

 

Hard Assets Investor: Your report says demand held pretty steady in the first quarter of 2015, but you also mention "changeable conditions". What's going on there?

 

Juan Carlos Artigas: What we mean is that there have been various macroeconomic environments happening in different parts of the world. So in the US you have strengthening. In Europe you obviously have problems with Greece in particular, and concerns about that. Some of this iteration happened in various parts of emerging markets. So those are the changeable conditions where there's a backdrop against an overall fairly stable demand.

 

HAI: If you look at the numbers against the backdrop of a strong Dollar, for example, and expectations of a Fed rate increase sometime this year, demand held steady?

 

Juan Carlos Artigas: That's probably the best way to look at this. If you see the overall number, it is flat. But that is masking, actually, regional and sectoral differences that are actually quite interesting. And there was, indeed, a certain degree of uncertainty that was happening, especially in Europe. And you did see a pickup in investment demand in there. So you saw places like Germany and other parts of Europe, Switzerland. Also, strong ETF flows throughout, in particular in the US, Germany, the UK are examples where ETFs had a quarterly net positive for the first time in almost two years.

 

HAI: That's got to be a very positive development, don't you think?

 

Juan Carlos Artigas: Yes, and I can tell you that from a more anecdotal perspective, that's the way that we talk to investors fairly often and fairly consistently. And the main change is that, when we were speaking to investors last year, they were concentrating more on the downside in 2014, what the downside for gold could be, how much lower could prices go. And actually, there was an expectation for gold prices to fall much further, which they didn't.

 

And that, I think, itself created a better sentiment amongst investors for gold. And now, when we have been speaking to investors, especially during the first quarter and April and part of May, the sentiment has changed more toward what is the opportunity in gold? What are the different factors that influence it? How can it react to variables, like you mentioned the Dollar rates? And that has shifted quite a bit from what we saw in previous years.

 

HAI: On the flip side of that, we saw investment demand in China and India come down a little bit, and more interest in their local equity markets.

 

Juan Carlos Artigas: I think gold will remain very well positioned and very well established in Asian markets. Look, you don't even have to go too far to see that in Western markets, gold is still relevant. And you have places like Germany, now, and the UK and the United States. But focusing in particular on last quarter, when the conditions of uncertainty started to increase, people use gold, because they think that the value of gold really withstands many developments that happen in the world. 

 

Now, looking at India, very much in particular, in 2015, the government came out with various proposals in their budget to incorporate gold into financial systems, not to leave it out or on the fringes, and something that would be frowned upon. But actually, understanding that there's a lot of potential in that market, there's a lot of interest from investors and consumers in gold-backed bonds and many other parts of the infrastructure that would support the gold. These policies are much more gold-friendly. And that is a positive sign overall. And China is also a country where government policies have been very friendly and pro-gold over the past years, and over the past decade. So I think that that is more the trend that we are seeing and what we expect.

 

HAI: Let's talk a little bit about central banks; we saw continued activity there, as a matter of fact, I think the 17th-consecutive quarter of accumulation by central banks. We've talked about this in the past. This is just a matter of diversification, right? Central banks looking to diversify their holdings of currencies, really, mostly in Dollars, but a small basket of diversification there. Gold adding to that diversification.

 

Juan Carlos Artigas: That's correct. And actually you were saying before and despite these conditions or how you had a strengthening Dollar and expectations of a rate hike by the Fed. And actually, when we talk about central banks, many investors and commentators were thinking that, because of a stronger Dollar, purchases by central banks would either reduce substantially or not be happening at all. And we saw quite the opposite: that they were pretty much at a very consistent pace as they had been in the past. That underlines our expectation that central banks, especially from emerging markets, are using gold to diversify. They will continue to use gold to diversify. And this trend is quite robust.

 

HAI: Russia's central bank emerged again as a big buyer, but is that good policy? It seems to be almost a fiscal stimulus to the mining sector.

 

Juan Carlos Artigas: Well it can be at one particular country. What is most interesting is that this behavior of diversification of reserves actually applies to emerging markets in general. So, I think that the underlying policy, which is diversification, it is important. And in our perspective, the Dollar obviously will remain a very, very important currency in the monetary system. That is not going to change any time soon.

 

But the fact of the matter is, there is more competition, or there will be more competition from other currencies in years to come, some from emerging markets maybe including the renminbi in China, as it starts to be a more important part of their reserve system. And that, in itself, is a positive for gold, as a way to diversify some of the risk that is both by individual countries or individual currencies in reserves.

 

HAI: That speaks very positively for gold. Juan Carlos, thank you very much.