Gold News

Did 'Safe Haven' Buying Spur Gold Price Jump?

Nope. Private investors sold net-net at end-2018...
So did SAFE HAVEN demand drive gold prices to their multi-month highs this New Year? asks Adrian Ash at BullionVault.
You'd think so reading news-wire headlines and the financial pundits.
But last month's price surge – gold's steepest gains since the UK's Brexit referendum shock of mid-2016 – in fact saw private investors take profit and sell.
With global stock markets losing 7.7% across December – the MSCI World Index's worst month since 2011 – speculators and ETF investors pushed gold prices in US Dollar terms 5.2% higher.
In contrast, users of BullionVault – the world's largest online marketplace for physical precious-metal investment – sold one-fifth of a tonne net between them (222 kg).
Equal to 0.6% of all client holdings, that pulled the total now stored in specialist vaults in each client's choice of London, New York, Singapore, Toronto or (most popular) Zurich down to 39.0 tonnes from end-November's new record high.
Compared to November, the number of people ending December with more gold than they began rose 5.6%, but the number of net sellers across the month leapt 75.8% to the most since January 2018.
Together that pushed the Gold Investor Index – a unique measure of private-investor action in physical gold – down from 53.4 to just 51.8 in December, its lowest reading since gold's 3.5% price jump of August 2017.
A reading below 50.0 would indicate more sellers than buyers across the month.
Gold's summer 2018 price-drop saw the Gold Investor Index hit a peak of 56.8 in July, its highest level since Donald Trump won the US presidential election of late-2016.
In the 2 years since Trump entered the White House, the index has now moved in the opposite direction to gold prices in 20 of those 24 months. Contrary to news-wires headlines about 'safe haven' gold buying driving the price higher, such price-sensitive behavior continued in December even as world stock markets slumped.
  • Sales of American gold Eagle coins by the US Mint fell 93.0% from the same month a year earlier;
  • Sales of gold by Australia's Perth Mint also fell, down 5.5% from November to the weakest monthly total since June;
  • Household demand in No.2 consumer nation India also dropped, extending the slump led by rising Rupee prices across 2018.
So who did push the gold price higher last month?
Gold-backed ETF trust funds expanded, suggesting new interest from wealth managers finally catching onto the risks in the stock market only as their clients' equity investments tumbled.
More dramatic was the turnaround in speculative betting on gold futures and options – derivatives contracts which scarcely ever involve any gold – switching from bearish to bullish and driving spot prices higher in the process.
Private investors in physical gold, on the other hand, took a pass on this so-called 'safe haven' rush. And who did the selling? Gold last month traded higher than it did for two-thirds of the last 3 years in US Dollar terms. And despite representing just 20.8% of BullionVault's client base, customers who bought for the first time since gold prices bottomed at the end of 2015 accounted for 36.8% of last month's net sellers.
December's rise in gold sellers was most acute in the UK and Eurozone, where investors saw gold prices jump to the highest monthly averages since mid-2017 after touching 2-year lows earlier this autumn.
So last month's sell-off was, in the main, profit-taking. No one ever went broke taking a profit of course, and BullionVault enables private investors to buy or sell at live wholesale prices whenever they choose, 24/7, for no more than 0.5% commission.
But while the majority of active traders keep a 'core' holding whatever the price – pending the next financial crisis and long-term bull market in gold – such price-sensitive trading as we saw throughout 2018 and especially in December does risk being caught without gold should the equity sell-off now worsen and bullion extend its New Year surge.
Buy and hold could prove a smart strategy for 2019 given the geopolitical, economic and financial risks this year brings.
Silver also saw the largest number of sellers last month since New Year 2018, jumping 60.1% from November. But unlike gold, the number of buyers fell as the grey metal's price rose to 4-month highs in Dollar terms, dropping by 7.6%.
Together, that saw the Silver Investor Index fall to its lowest reading since February 2017 as silver prices rose back to late-summer levels, dropping to 50.1 to signal a near perfect balance of the number of net sellers with net buyers across the month.
By weight demand and selling were also balanced, keeping BullionVault users' total holdings unchanged from November's new record above 748 tonnes.

Adrian Ash

Adrian Ash, BullionVault Gold News

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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