Gold Investors Hold On, New Buying Still Missing
Tuesday, 9/05/2023 10:49
'Investment insurance' winning over silver...
LACKING a clear threat or worry in summer 2023, investors have been staying shy of buying gold bullion,
writes Adrian Ash at BullionVault.
But while mixed economic data and rising interest rates on cash also continue to hamper net demand to buy precious metals, existing owners are holding on to their bullion after gold and silver reversed this summer's earlier price drop.
Gold prices bottomed at 5-month lows in mid-August for people choosing to invest with US Dollar or Euros, and the bullion price hit new 2023 lows in British Pound terms before also rebounding to erase all of the summer's previous losses in the last week of the month.
This volatility left the
Gold Investor Index – a unique measure of private investing behaviour in physical bullion – almost unchanged at 54.2, up by 0.1 points from July and 0.2 points above August 2022.
The Gold Investor Index is built solely from revealed preference, rather than mere 'intentions' as in a consumer survey, amongst users of BullionVault – the world's largest single pool of self-directed precious metals investors, now caring for $4.0 billion of precious metal (£3.2bn, €3.7bn, ¥596bn) for over 100,000 customers from 175 countries.
It tracks the number of people starting to buy or growing their holding of securely vaulted gold against the number of people choosing to sell. The index peaked at 65.9 as the Covid Crisis began in March 2020, and it signals more buyers than sellers with any reading above 50.0.
Why such little movement as summer 2023 draws to a close?
High gold prices plus rising interest rates continue to deter new buying. They also invite profit-taking among existing investors. But selling remains muted, and gold owners as a group are keeping hold of the precious metal as investment insurance, mindful of the mixed economic outlook and the threat to wider global financial markets from China's real-estate slump.
China's domestic bullion market today set
another all-time record gold price high, the 3rd in a week for Yuan investors. That reflects both the Chinese currency's decline on the FX market and solid household demand in the precious metal's largest consumer market meeting restricted supply thanks to the People's Bank
capping new gold import licenses in a bid to stem outflows of foreign currency.
Silver prices were more volatile than gold in August, moving 12.5% low-to-high – three times the range in gold – and rising 0.7% across the month but losing 2.5% on a month-average basis.
That underlying drop invited some bargain-hunting among users of BullionVault, with the Silver Investor Index rising 1.9 points to 50.2 as buyers returned to outnumbering sellers, but only very slightly.
By weight, August's 1-tonne growth in the total quantity of silver belonging to BullionVault users marked only the 6th inflow of the last 12 months, with client stockpiles ending August at 1,245 tonnes, still 1.8% smaller than last October's record.
Gold holdings, in contrast, have expanded in 10 of the last 12 months, setting 3 new all-time records this summer to reach 48.2 tonnes at end-August, albeit with a mere 1 kilogram net inflow across the month as a whole.
Taken together meantime, the number of first-time bullion buyers rebounded 27.9% last month from
July's 9-year low, reaching the most since May and led by a revival in new investors living in Germany, the UK and France.
New interest in the USA, in contrast, continued to run at the weakest since the bear market in gold and silver of a decade ago. Again, and with Dollar interest rates now edging above inflation for the first time in 5 years, buying precious metals has lacked urgency this summer, leading to weak inflows compared to the global pandemic of 2020, Russia's invasion of Ukraine starting in 2022, or the
mini-crisis in the banking sector of early 2023.
To date, it has taken those
dramatic events to drive gold to $2000 per Troy ounce. And while gold's safe haven appeal is winning out against the greater volatility and
industrial uses of silver right now, the lack of a clear and present threat or crisis means that Western inflows to physical gold remain soft.
That's likely to change if financial markets start to worry about spillover from China or the impact of rising interest rates on economic growth closer to home. But should that drive prices sharply higher again, will existing gold investors be able to resist taking profit?
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