The SPDR Gold Shares (NYSEArca: GLD), SPDR Gold MiniShares (NYSEArca: GLDM) and other bullion-backed exchange traded products are trading slightly lower this year as investors are favoring riskier assets, but some gold market participants are still favoring bullion.
Investors have looked to GLD as a quick and easy way to gain exposure to gold price movements as they hedge against market risks, help protect their purchasing power in times of inflationary pressures or capitalize on increasing demand from the emerging markets with a growing middle-income class.
New research from the World Gold Council (WGC) indicates some global central banks remain voracious buyers of gold.
“This compares with a relatively weak Q1 2018, when demand sank to a three-year low of just 984.2t,” said the WGC in a note out Thursday. “Central bank buying continued apace: global gold reserves grew by 145.5t. Gold-backed ETFs also saw growth: quarterly inflows into those products grew by 49% to 40.3t.”
Boosting the case for gold is that the Federal Reserve recently alluded to no more rate hikes for the rest of 2019 after initially forecasting two. The capital markets initially expected rates to remain steady after the central bank spoke in more dovish tones following the fourth and final rate hike for 2018 last December.
“Central banks bought 145.5t of gold, the largest Q1 increase in global reserves since 2013,” according to the WGC. “Diversification and a desire for safe, liquid assets were the main drivers of buying here. On a rolling four-quarter basis, gold buying reached a record high for our data series of 715.7t.”
Bar and coin investment has recently been slack, but data suggest gold jewelry demand has been robust.
“Total bar and coin investment weakened a fraction to 257.8t (-1%), due to a fall in demand for gold bars; official gold coin buying grew 12% to 56.1t,” said the WGC. “Jewelry demand was a touch stronger y-o-y at 530.3t, chiefly due to improvement in India’s market. The volume of gold used in technology dipped to a two-year low of 79.3t, hit by slower economic growth. The supply of gold in Q1 was virtually unchanged, just 3t lower y-o-y at 1,150t.”
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