Bullion market remains strong

As the financial year closes, New Zealand Mint’s Mike O’Kane tracks gold’s progress

Despite new confidence about improving global economies, gold remains popular across the three major markets.

 

US market

Overall the US market for gold is still strong, up year on year, but down from its record high of USD$1920 in September and November last year. While the market and economy remain muddled, and talk of recovery is tempered with results that show otherwise, pricing will remain underwhelming and volatile.

Physical demand is stronger, with many citizens looking to hold gold as a safe haven or as an insurance policy for their portfolios. Compare this with 2009 - 2010 where in the US Gold brought 10% growth and real estate 0.74%)

 

US Markets in summary:

• QE3 – speculation is rife whether QE3 is on or off, with current attitudes changing as regularly as socks. The past few years have seen strong growth in USD$-denominated gold as investors anticipate inflation due to Fed’s tactic of “kick-starting” the economy by printing money. That’s generally considered positive for the long term outlook for gold.
• “The US economy will continue to recover only gradually and labour market slack will remain substantial for a number of years to come,” the Fed’s vice chair Janet Yellen said last week at New York University.
• Jobs data has come out worse than expected in the most recent two reports, not what is required for a recovering economy.

 

EURO Zone

In Europe, issues remain around potentially defaulting nations such as Portugal, Italy, Ireland, Greece and Spain continue to haunt markets thus underpinning gold’s safe haven status.

 

Fundamentally, confidence is weakening in the ability of these nations to lower deficits and become financially stable over the medium term. That leads to a weaker Euro against the US Dollar.

The alternative currency in this mix is gold and it appreciates as investors move away from the troubled currencies. However the trend is tempered by an appreciating US dollar which makes the Greenback more attractive to many investors and weakening demand for gold.

 

The upshot of all this is that both currency and gold markets are pretty volatile.

 

Brazil, Russia, India, China et al

The BRIC Nations are a bright spot with the strengthening of their economies during the most recent decade and as a result gold demand as an investment has escalated.

 

In China, 10 years ago growth in the gold price was zero – now the People’s Republic is the second largest physical gold market in the world, just behind India. Whenever demand in either of these nations decreases, it is felt around the world. A good example of this is the recent general strike by Indian jewellers in response to an excise duty on unbranded jewellery and doubling of the import tariff to four per cent.

 

The strike has resulted in US$4billion in lost revenue and the consequences have been felt globally as the gold price has “capped” because of weak demand for physical gold. The strike was recently called off, but there has been no noticeable change as the tariffs remain in place until May when the Indian Parliament reviews it again.