Global gold exchange traded product holdings have risen to a record level of 78 million ounces.
While emerging market physical demand may have dried up, particularly in India as a result of the weak rupee and government policy, ETP investment demand has remained buoyant, increasing by over 3% over 2012 to reach record highs. Interestingly, the latest World Gold Council report into gold trends showed that if China and India were excluded from the investment demand calculation (overall investment was lower by 23%), investment jumped 15% for Q2 2012 from a year prior.
The performance of gold has been impressive despite the drop in demand. The World Gold Council indicated that while demand dropped 7% in Q2 2012 compared to a year earlier, the price was resilient, rallying by 7% over the period. [Gold ETF Demand Holds Steady]
The increased economic uncertainty and expectations of policymaker stimulus that has pervaded financial markets in recent years and led investors to defensive assets has partially offset soft physical demand from emerging markets. Chinese and Indian demand were the main reasons behind the weaker physical demand in Q2. While jewellery demand contracted 15% over the 12 months to Q2 2012, the contraction is only 4% if China and India are excluded from the calculation.
In contrast, emerging market central banks have been the driving force behind the net long position in gold by the official sector, as they seek to diversify foreign exchange holdings, partially offsetting weak private sector demand.
There are several key events for gold investors to watch this week. The focus will be on Eurozone talks and manufacturing data.
European leaders appear more willing to create a united front on the battle to reduce debt burdens and assist embattled countries to reduce borrowing costs. As a result, investors will be keenly watching progress of bilateral talks between German, Greek and French policymakers this week for any additional clues on Eurozone bailout packages.
The political deliberations will likely be set against the background of ongoing soft activity, with manufacturing indicators (PMI’s) expected to show a further contraction for the sector. Precious metals investors will be keenly eyeing the latest release of the US FOMC minutes on Wednesday. [Weekly ETF Review and Outlook]
ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)