Gold News

Inflation? Private Investing Still Cold on Gold

Surging stock markets dull gold's investing shine...
 
FALL 2021's surging inflation rates continue to leave investors cold on gold, with sentiment towards the precious metal falling to its weakest level since mid-2019, writes Adrian Ash at BullionVault.
 
By weight, in contrast, gold investing demand rallied sharply last month from September's net selling – the first (if small) liquidation of gold by users of the market-leading e-commerce platform for trading physical gold since the eve of the Covid Crisis.
 
But the surging cost of living has failed so far to ignore strong demand to invest in gold, and prices are equally flat.
 
That's because major central banks are following emerging markets in tightening monetary policy, creating a headwind for non-yielding gold even though interest rates remain far below the pace of inflation.
 
With US inflation now running at 3-decade highs, more than reversing the pandemic's commodity-price crash, the Federal Reserve is expected to start reining back its historic pandemic stimulus at this week's policy meeting, tapering new QE money creation from the current $120bn per month.
 
The resulting strength in the US Dollar saw gold average its lowest price in 4 months in October, just below $1777 per ounce, while prices for both Euro and UK investors rose marginally.
 
Across BullionVault's global user base of more than 99,000 customers, the number of gold buyers slipped 13.9% from September while the number of sellers rose by 12.7%.
 
Together that took the Gold Investor Index, a unique measure of revealed preference among the largest single pool of private bullion owners worldwide, down from 54.7 to 53.4, just below January 2020's pre-Covid low to its lowest reading since July 2019.
 
Chart of the Gold Investor Index, last 3 years. Source: BullionVault
 
A reading of 50.0 would signal an exact balance between the number of people starting or adding to their personal gold holdings with those who reduced or sold out entirely.
 
The Gold Investor Index hit a decade-low of 49.1 in June 2019 as prices rose sharply, followed by a decade-high of 65.9 in March 2020 when the Covid Crisis first hit.
 
New all-time highs in the stock market are also leaving gold investing in the shade, as do the supply-chain pressures driving energy and other commodity prices higher.
 
None of this undermines gold's value as a portfolio hedge. On the contrary, gold's strongest returns tend to come when equities suffer long-term losses, and investors choosing to buy gold today are doing so when the market is quiet and other asset prices are looking increasingly over-extended.
 
With the number of gold buyers continuing to beat the number of sellers last month, gold demand was positive by weight in October, more than reversing the previous month's liquidation with net purchases totalling 123 kilograms.
 
September had seen BullionVault users as a group sell gold for the first time since January 2020, eve of the global Covid Crisis, with net sales of 87kg.
 
Last month's growth took the total quantity of gold owned by and insured for BullionVault users – all held in each client's choice of New York, London, Singapore, Toronto and, most popular, Zurich – reach a new month-end record above 47.7 tonnes, now worth $2.7bn (£1.9bn, €2.3bn, ¥309bn).
 
Chart of the Silver Investor Index, last 3 years. Source: BullionVault
 
Like gold, silver prices also rose slightly in October in Euro and British Pounds terms but fell in US Dollars, marking the lowest monthly level since July 2020 at $23.30 per ounce.
 
As with gold, that saw the number of silver buyers fall overall, down 28.9% month-on-month, while the number of sellers rose, up 16.6% to the most since May, back when prices were over $4 higher per ounce.
 
Together this activity in October drove the Silver Investor Index lower at its fastest pace since April, down fully 3 points to 51.8 – like gold, dipping below January 2020's pre-Covid low to show the weakest net sentiment since July 2019.
 
But also like gold, net demand for silver by weight was solidly positive, reaching 9.9 tonnes and taking the total quantity of the precious metal held and insured for BullionVault users to a fresh all-time record of more than 1,244 tonnes, now worth $961m (£697m, €825m, ¥109bn).
 
In terms of new investing interest in precious metals overall, October's number of first-time bullion buyers rose for the 3rd month running from July's 2-year low, but it remained more than one-third below the past half-decade's average, down by 34.7% from the typical monthly count of new investors since this point in 2016.
 
To repeat: Gold, silver and platinum investing are pretty quiet right now. That should interest any long-term investors thinking about building a position, or expanding what has historically proven a useful form of investment insurance for other, typically better-performing assets when those assets suffer protracted and extended losses.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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