News ID: 176899
Published: 0247 GMT February 03, 2017

Gold demand hits four-year high after Brexit and Trump votes

Gold demand hits four-year high after Brexit and Trump votes

The Brexit vote and the election of Donald Trump drove global demand for gold to a four-year high in 2016, as pension funds and other institutional investors piled into the precious metal while higher prices put consumers off jewelry purchases.

Global gold demand rose two percent last year to reach 4,309 tons, the highest level since 2013, according to a report from the World Gold Council, which represents gold miners.

This was largely driven by inflows of 532 tons into gold-backed exchange-traded funds (ETFs), which track the spot price of gold – marking the best year for ETFs since 2009.

Gold is seen as a safe haven in times of turmoil, and there was plenty of that last year. Alistair Hewitt, head of market intelligence at the World Gold Council, pointed to the shock Brexit vote and the election of Trump as US president, along with the upcoming Dutch, French and German elections. The weaker yuan and low or negative interest rates also made gold more attractive, helping push up investment demand by 70 percent.

Hewitt said: “2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold. ETFs are easy ways for people to access gold.”

However, jewelery demand hit a seven-year low in 2016 due to rising prices for much of the year, while central bank purchases were the lowest since 2010, due in part to increased pressure on foreign exchange reserves.

Consumers in China and India, the world’s two biggest gold markets, bought less jewelry as the price of gold rose 25 percent between January and September. Prices then fell between October and December, which meant gold prices were eight percent higher over the year as a whole.

Consumer buying in India and China dropped by 21 percent and seven percent respectively in 2016. In India, rural communities were hit hard by the cash crunch caused by the withdrawal of high-denomination rupees in November, but the effect is likely to be temporary, the report said — healthy incomes from the good monsoon should support gold buying in coming months.

The price dip in November, when Trump’s ‘positive growth rhetoric’ led to the dollar and equity markets strengthening, contributed to a strong recovery in the bar and coin market in the final quarter, Hewitt said.

He highlighted changing tastes, with younger people in China preferring lower-grade, branded jewelry to the top grade gold favored by their parents’ generation — design over quality. Younger Chinese also prefer to spend their money on travel rather than material things. In the US, yellow and rose gold has gained in popularity. Gold teeth have continued their decline.

For the first time in years miners started exploring for gold again spurred on by the rise in prices, mainly looking to strike gold on the periphery of existing mines. But it will take several years for this to feed through into increased mine production.

 

   
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