The SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold-related exchange traded products, as is the case with other commodities, can be helped or hindered by supply and demand dynamics.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
Related: Demand Supports Gold ETFs
The good news for gold bulls is that demand for the yellow remains robust and that trend could continue if China, one of the world’s largest bullion buyers, steps up purchases. 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.
[related_stories]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.
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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.
“The potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls,” analysts including Jeffrey Currie and Max Layton, wrote in a report dated Oct. 24. Bullion consumption in China may also rise “as a way of diversifying away from the property market,” they said in a Bloomberg article.
For more information on the gold market, visit our gold category.
SPDR Gold Shares (NYSEArca: GLD)
Tom Lydon’s clients own shares of GLD.