The value of gold hit a six-and-a-half-year high at $1546/oz at the start of September, driven by investor sentiment and macroeconomic factors, says financial markets data provider Refinitiv in its latest ‘GFMS Gold Survey’.
Over the third quarter of the year, gold recorded a “spectacular” performance, with its dollar value appreciating by 12%, compared with the prior quarter, and was valued at 22% more year-on-year, at an average of $1472/oz.
“Renewed economic concerns, geopolitical tensions and the rising threat to the global trade outlook amid the prolonged trade disputes between the US and its major trade partners all contributed to this hike in value.
“Further, a visible shift among the world’s key central banks towards a more accommodative monetary policy this year has seen investors flee back to safety, making gold shine even brighter,” said Refinitiv precious metals research director Cameron Alexander.
He explained that the quarter saw interest rates cut by the US Federal Reserve System and the European Central Bank, while emerging banks implemented stimulus measures in their markets, such as China, India and Russia.
This resulted in a spike in investor activity, particularly among the professional investor community.
Gold exchange-traded products (ETPs) posted a remarkable increase of about 350 t in the first nine months of this year, with the bulk of purchases taking place in the third quarter, when global holdings jumped by 247 t.
“To put this in context, holdings at the end of September were up by 21% year-on-year and were just a bit shy of their record level of about 2 700 t seen back in 2012.
“Meanwhile, net managed money positions on Comex hit a record high – since the change in the reporting methodology back in 2007 – of 908 t during the last week of September, which represented an increase of 194 t, or 27%, over the third quarter,” said Alexander.
However, retail investment plunged by 25% in the third quarter, compared with a year before, led by lower physical bar investment and coin fabrication.
Refinitiv said the drop in physical bar investment was driven by Asia, where demand contracted by a third during the third quarter, which was partly offset by an uptick in demand from Europe and North America, where mounting economic concerns and an improving gold price outlook saw renewed investor interest.
Global jewellery fabrication dropped by 26% in the third quarter, on the back of high gold prices putting pressure on price-sensitive Asian markets.
Meanwhile, Refinitiv reported that accumulated gold production during the first nine months of the year totalled 2 516 t – representing a near 3% increase from the same period in 2018.
Total global production is estimated to reach a new record of between 3 380 t and 3 390 t this year, which would be a considerable increase from the 3 332 t reported in 2018.
Current prices were supporting higher capital expenditure, while there were an increasing number of feasibility reports and project exploration updates.
“This suggests there is currently a good mood for investing in gold, which is expected to persist for some time,” said Alexander.
Looking ahead, Alexander concluded that the outlook for gold remained supportive and would continue to benefit from ongoing global economic and political tensions, particularly should the world see further escalation of the US-China trade conflict, fears of an economic downturn and central banks embarking on more aggressive monetary measures.
“On the other hand, a weak fundamental picture and a strong dollar will pose a major drag on prices. “We expect gold to average $1 455/oz in 2020 and $1 505/oz in 2021, with a possibility to test and move beyond $1 650/oz.”