Gold exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), are often beholden to demand dynamics. Fortunately, data suggest a major gold buyer is renewing its affinity for the yellow metal.
Moreover, in the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates over the mid- and long-term, gold prices could still move modestly higher with some help from increased demand out of the emerging markets, namely China and India. Indeed, China is again gobbling up gold.
“China seems to have recovered its appetite for gold, with demand for bars and jewelry markedly increasing in the first nine months of the year, data from the China Gold Association shows,” reports Mining.com. “Total gold consumption, including jewellery and bullions but excluding the central bank’s purchases, went up 16% to 815.9 tonnes in the period, the association reported Wednesday according to Xinhua news agency. That’s a positive turnaround from the same period last year, when demand dropped by almost 13%.”
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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.
“China, the world’s No.1 consumer and producer, accounts for about 29% of the global jewellery demand, and close to 26% of total bars and coins purchases. With its almost 1,843 tonnes, the country also has the fifth largest gold reserves in the world, data from the World Gold Council corresponding to the second quarter of the year shows,” according to Mining.com.
Investors have pulled nearly $563 million from GLD since the start of the fourth quarter.
The good news for gold ETFs is that inflation could serve as a catalyst for the yellow metal. Rising inflation could also prove to be a catalyst for gold ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.