To say gold is an asset that is out of favor this year may be an understatement. The SPDR Gold Shares (NYSEArca: GLD), the world’s largest gold exchange traded fund, is lower by 7.6% year-to-date and many investors have been departing gold ETFs.
Investors have been shunning physical assets like gold in face of further interest rate tightening out of the Federal Reserve amid a robust U.S. economy. Fed Chairman Jerome Powell said earlier in August that gradual rate hikes will come, and with inflation still low, there was little concern over the economy overheating.
While gold coin sales are sliding and investors are departing gold ETFs like GLD, there remain interested gold buyers. Namely, global central banks.
“Central banks’ demand for gold reached a three year high, rising 8% during the first half of 2018 compared to the same period last year, according to a World Gold Council market update on central bank buying activity released today,” reports Mining.com. “Data reveals that 2018 H1 marks the strongest year for central bank gold buying since 2015 – a total of 193.3 tonnes of gold have been added to central bank reserves so far, compared to 178.6 tonnes during the same period in 2017.”
A small amount of central banks account for a massive percentage of this year’s gold buying by related institutions.
“Emerging market central banks have played a key role, with Russia, Turkey and Kazakhstan accounting for 86% of central bank purchases in the first half of 2018,” according to Mining.com. “An IMF Financial Statistics Report reveals that Egypt recently bought gold for the first time since 1978, and that India, Indonesia, Thailand and the Philippines have re-entered the gold market after years-long absences.”