Gold News

Investing in Gold Fails to Jump on Low Prices

Cheapest gold since 2016 sees new investing drop...
 
SINCE the eve of Donald Trump's election as US president, investing in gold has tended to rise when prices fall, writes Adrian Ash at BullionVault.
 
Interest among the "retail" public would then ease back when prices rose, with people already invested in gold choosing to pause their buying or sell to take profit.
 
This bargain-hunting behavior among private investors in Western Europe and North America made a contrast with how hedge funds and other professional traders behave. Defying the urge to chase prices higher or quit when gold fell, it meant buying low to sell high.
 
As a group, private individuals investing in gold were price-sensitive like this in 19 of the 22 months from October 2016 and July 2018. The Gold Investor Index tracks the balance of buyers and sellers each month on BullionVault, the world-leading online exchange now caring for over $1.8 billion of securely stored client property. It rose when gold prices fell, and fell when gold rose.
 
But last month the investing index fell even as gold prices dropped. That was the second such month in a row, the longest stretch of prices and private interest moving together since gold touched what remains its highest prices of the last half-decade in the summer of 2016.
 
The reason? Prices fell in September 2018 for the 6th month running. Much of the bargain-hunting had already occurred, and what demand there was came primarily from existing gold owners, because new interest fell steeply as prices dropped yet again.
 
Yes, these lower prices continue to deter existing owners from selling gold. But buying also slowed in September as prices extended their longest drop since the historic crash of 2013.
 
Gold's drop to the lowest prices since New Year 2016 saw the number of sellers retreat 7.2% last month from August, falling back near July's 10-year low on BullionVault's world-leading exchange.
 
The number of buyers fell more steeply however, dropping 13.9% in September after reaching the highest levels over the summer since Donald Trump moved into the White House in January 2017.
 
Together, that pulled the Gold Investor Index – a unique measure of private-investor activity in gold – down to 55.0 in September, one point lower than the previous month's 56.0 reading.
 
The Gold Investor Index would read 50.0 if the number of people starting or growing their gold holdings across the month matched the number of net sellers exactly.
 
BullionVault's index peaked at 71.7 when gold prices peaked above $1900 per ounce in September 2011, and bottomed at 50.5 as prices fell to multi-year lows at $1050 by end-2015.
 
Like gold prices, silver in September also retreated to its lowest prices since New Year 2016, losing almost 5% in US Dollar terms for the third month running.
 
That saw private investors respond more positively, with the number of silver buyers across the month slipping 4.5% while the number of sellers sank 21.7%, down to the fewest since August 2010.
 
Together that pushed the Silver Investor Index up to a 7-month high at 54.3 from August's 53.9 reading. And by weight, silver demand grew faster than gold, adding 2.4% to BullionVault client holdings and taking them up to a new record total above 745 tonnes.
 
Gold holdings in contrast grew by 0.4% to reach 38.9 tonnes, just below July's record high total.
 
But new interest in investing in silver from outside existing owners was also muted. And across all three metals (customers also trade platinum), the number of private investors using BullionVault for the first time fell 23.7% in September after reaching a 6-month high in August.
 
That put the level of new interest in precious metals 16.4% below its 12-month average.
 
Bottom line? Ten years after the credit crunch became an uncontained crisis, gold's success in offsetting that crash is also fading from memory, and the metal is struggling to attract interest from new investors.
 
With global stock markets looking increasingly stretched near record highs, this could prove a cause for regret in the next couple of years. Gold's falling price now offers the cheapest investing entry-point since before Trump's victory and the Brexit referendum shocks of 2016.
 
Buying at these low prices – amid this drop in new interest – isn't certain to pay off. It also means bucking the crowd, instead of buying what's hot. But if the stock market fails to trade higher from today's levels 5 years from now, history suggests gold has a 98% chance of rising to help offset that loss.

 

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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