BullionVault Weekly Update
Monday, 16 July 2018
In the markets this morning...
Dollar falls, precious metals drop for non-US investors...
How much am I bid for this dead-eyed Kate Moss badly cast by a 6th-form art project...?
For up-to-the-minute live spot gold and silver prices use the BullionVault chart
Buying Low, Playing the Herd
from Adrian Ash
Head of Research, BullionVault
GOLD BUYING on BullionVault jumped 5-fold last week.
The online market-leaders worldwide, we saw client demand...net of client selling...average more than 12kg (395 Troy ounces)...
...a rise of 421% from the previous 12 months' daily average.
On Wednesday alone, users of BullionVault bought 37 kilograms (1,192 Toz) of gold worth $1.4 million (£1.1m, €1.2m, ¥161m).
Two thoughts, plus one thank you.
First, this surge has now taken the total amount of gold owned by private investors using BullionVault up to a new all-time record above 38.8 tonnes.
Worth $1.6 billion (£1.2bn, €1.3bn, ¥175bn) that hoard is larger than most central-bank holdings...and it's bigger than all but 10 of the world's stockmarket-listed gold ETF trust funds.
So thank you for your custom. It's nice to be No.1...as well as the cheapest, safest and simplest. And it's nice to see such a strong upturn in net demand.
Second however, what drove last week's jump in gold buying on BullionVault?
UK Brexit turmoil...the global trade war...and then Trump's attack on the United States' own Nato allies...
No doubt all these played a big part.
But the plainest and most direct cause for this surge looks like the dip in prices.
You see, since gold prices peaked and turned lower in 2011, private investors like you and me have become increasingly price sensitive on bullion.
As a group, we buy more when prices fall...and ease off or take profit on a spike.
Indeed, since Donald Trump won the US election, interest has moved opposite to the direction of prices in all but 3 of the last 20 months on our Gold Investor Index.
In part, this trend is due to the loss of interest from the wider public.
Because as the financial crisis has receded into history, the 'herd' of household savers has stopped piling into gold after seeing it on TV...
...and gone back to buying equities, real estate and structured products from the financial services industry too.
That has put a 'contrarian' shine back on gold...leaving more active, self-directed investors to trade bullion in the retail market.
These more active investors look to buy low and sell high...a profit-making strategy which echoes how Asia's household buyers behave.
It's also the opposite of how money managers tend to act.
As a group, professional investors like to chase prices higher and then sell when prices are falling.
That way they must be doing what everyone else in their profession is doing...
...and no one ever got fired for doing what the rest of their industry was doing!
Hence the drop in gold ETF holdings as gold prices have fallen. Hence the bearish turn in derivatives betting too.
The largest gold ETF...the SPDR Gold Trust (NYSEArca:GLD)...last week shrank by almost 1% as shareholders quit. It ended Friday at the smallest size since mid-August last year.
No coincidence but the GLD is about two-fifths owned by 'institutional' investors who have to report their positions to US regulators.
The 'Managed Money' category of traders in Comex futures and options meantime cut their bullish betting on gold prices by 25% last week net of that group's bearish bets.
That put their overall bullishness on gold at the lowest since prices finally found a floor and turned higher after falling for 4 years as the US Federal Reserve finally began raising its interest at the end of 2015.
So the 'smart money' is selling gold exposure as prices drop. Which is just how the herd must behave.
And private investors buying this summer's drop are effectively betting that the 'smart money' will stick to this herd behaviour…
...piling into gold when equities next take an extended dive...
...driving the price higher...
...and enabling early buyers to take profits just when the herd's frenzy to get in hits its peak.
Looking at 5-year periods since 1968, our research finds that gold priced in Sterling has risen 96% of the time when the UK stock market has traded lower from a half-decade before.
For US investors, gold has risen 98% of the time that the S&P has fallen over a 5-year period.
Nothing is guaranteed of course. And today's bargain hunters may perhaps be looking for a quick win.
But the problems highlighted by the UK's Brexit vote...Trump's war on globalization...and the row over challenging or befriending Vlad Putin don't look likely to end any time soon.
Patience is more likely to reward investors buying gold on this summer's drop.
New Zealand business activity growing but slower (NZ PMI)...
Australia business confidence not rising as expected (NAB survey) but consumer confidence stronger after mortgage borrowing rises, inflation expectations retreat...
Japan machine-tool orders up 11.4% per year last month, machinery orders jump 16.5% as corporate goods prices rise, industrial output slips...
China bank lending jumped in June but money-supply growth slowed to 8% per year as consumer-price inflation edged up to 1.9%, producer prices leap 4.7%. Trade surplus swells on export growth slowing less than imports. Trade surplus with the US sets new record...
India industrial output growth slowed hard in May, FX reserves slip at $406bn...
Eurozone investor confidence rising (Sentix) but economic sentiment craters (ZEW) as Germany's trade surplus slips, "self-sustaining inflation" rises in Spain, flat but high in Germany + France, Italy industrial output misses forecasts...UK industrial output fell again in May, trade deficit widened in goods, but housing market turns positibe (just, RICS), GDP ticks up (NIESR estimate to June)...
US consumer borrowing leapt in May, twice what analysts expected at $24.6bn as jobs openings + small business optimism fell less than forecast (JOLTS, NFIB). But consumer confidence slips (Michigan) as so-called 'core' consumer-price inflation rises to 18-month high of 2.3%. Headline producer prices rising fastest since 2011 at 3.4%...
Canada new home-building + permits jumped in May but new house prices slowed to 0.9% annual rise...
Central-bank watch Two changes in 10 decisions last week as Canada raised 2nd time in 2018 to 1.5%, Ukraine also raised half-a-per-cent to 17.5%...
Central banks this week Only 3 decisions due, with South Africa (hit by mining slowdown) due Thursday. Fed chief Powell speaks + answers questions from US Congress on Tues + Weds...
So far Monday China GDP stronger than analysts forecast in Q2, up 6.7% per year as industrial output slowed in May; Eurozone trade surplus shrank hard that month...
Later today US retail sales...
Tuesday New Zealand inflation; China house prices; Italy inflation plus industrial sales + orders; UK jobs + wages; US industrial production + housing market (NAHB index)...
Wednesday Eurozone inflation (headline 2%, core 1%); UK inflation (CPI forecast up 2.6% per year, RPI 3.5%); US house building + permits, plus weekly crude oil stockpile report...
Thursday Australia jobs data + business confidence (Westpac); Japan trade data; UK retail sales; US weekly jobless benefits claims; Canada jobs data (ADP estimate)...
Friday Japan inflation (forecast to edge higher in June but still still half Jan's 3-year high of 1.5%) + all-industry activity index (May); Germany producer prices; Eurozone current account surplus with rest of world; UK government deficit for June; Canada retail sales + inflation (2.5% forecast)...
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