Global central bankers’ ever-looser monetary policies and increased uncertainties helped drive investment demand for gold bullion and related exchange traded funds to record highs for the first six months of the year.
According to the World Gold Council, over the first-half of the year, investment demand for gold, which includes bars and coins and demand from ETFs, hit 1,063.9 metric tons, or up 16% from the previous first-half-of-the-year record in 2009, and accounted for almost half of the overall gold demand for the first six months of 2016, reports Myra Saefong for MarketWatch.
Specifically, investment in gold jumped to 448 metric tons in the second quarter, or more than double the figure of the same period year-over-year, largely due to a year-over-year increase in ETF investment to 236.8 metric tons, compared to a 23 metric ton outflow the year prior.
ETFs have been a easy and popular method to access gold price movements. For instance, the SPDR Gold Shares (NYSEArca: GLD), the largest gold-related ETF, has attracted more than $13 billion in net inflows year-to-date.
Total gold demand, which includes usage in jewelry manufacturing and the industrial sector, for the first half was 2,335 metric tons, the second highest on record.
Preliminary data also revealed inflows into gold continued unabated at the start of the second half, with an additional 80 metric tons added in July.
“There are three structural factors prompting institutional investors to … increase their exposure to gold,” WGC’s head of market intelligence, Alistair Hewitt, told the Reuters Global Gold Forum. “The first is the unparalleled loosening of monetary policy, most notably the pernicious spread of negative interest rates. Second, you have increasingly fractious politics, aptly illustrated by Brexit, and … finally the slowing pace of U.S. interest rate hikes and consequent slowdown of U.S. dollar strength.”[related_stories]
Gold typically benefits from low interest rates, which diminish the opportunity cost of holding non-yielding bullion. Moreover, the hard asset acts as a safe-haven investment or a better store of wealth during times of global unrest and market volatility.
The surge in investment demand has helped fuel a 25% rally in gold prices over the first half. GLD is up 25.8% year-to-date, with Comex gold futures now trading around $1,343.4 per ounce.
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Looking ahead, the WGC anticipates jewelry demand to increase in the second half of the year, notably in areas like India where key festivals and fourth-quarter holiday season in the West, could provide further support.
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