Despite the flat metals market in recent weeks, gold is still up 11% for 2017 vs. declines in most other commodities. The 19-commodity CRB Index is down 6% for the year-to-date, with crude oil down 8.35% and natural gas down 23.12%, so gold’s 11% gain is far above nearly every other commodity.
One of the reasons for gold’s gain is renewed investor demand. According to the World Gold Council, the world’s gold-backed ETFs added a net 192 metric tons (equivalent to $7.5 billion) to their holdings in so far this year, a rise of 7.7% from the end of 2016. While Wall Street analysts run hot and cold on their feelings for gold – usually depending on the price trend – average investors are voting to buy more gold.
Many major banks are predicting “more of the same” (flat) gold prices of between $1,250 and $1,300 by year’s end, but the London-based precious metals consultancy Metals Focus just released its second annual Precious Metals Investment Focus guide of the year, in which it predicts an average 2018 gold price of $1,400, more than 10% above the average price of $1,260 over the last two years.
Swiss global financial services company UBS looks for gold to recover to an average price of $1,325 for 2018.
“We think gold has the potential to test last year's highs as soon as near-term positioning is neutralized,” said the UBS report, written by strategist Joni Teves.
The UBS analyst team considers the “orderly” pullback for gold over the past few weeks as “encouraging.” They see it as an indication that the downside is “contained, putting gold in a healthy position for a recovery into early Q1.”
It’s important to remember that these predictors generally forecast “more of the same.” They tend to predict lower prices when gold is falling, higher prices when gold is rising and flat prices when gold is flat. Very few mainstream analysts predict “against the trend.” That’s not analysis, that’s herding!
Asian Gold Demand is Muted, but Russian Buying (and Australian Sales) Soar
One reason for gold’s recent slow growth is muted demand in China and India, the two largest gold markets in the world. Last week, Reuters reported that China’s net gold imports fell sharply (55%) from July to August, reaching the lowest monthly levels since January. Chinese buyers are price-sensitive and gold’s price rose rapidly in August, so we may see rising Chinese demand now that the price has retreated again.
The same is true in price-sensitive India, where gold usually surges during the fall wedding season and the gold-giving festivals of Diwali (October 19 this year) and Dussehra (September 30). In August, the Indian government placed the bullion industry under the Prevention of Money-Laundering Act (PMLA), which makes jewelers keep records of a customer’s tax code (or personal identification number) for any transaction above 50,000 rupees ($772). This tends to scare off customers, who “aren’t comfortable giving all details required under PMLA,” according to Kumar Jain of the Mumbai Jewelers Association.
In the meantime, Russia keeps buying up gold for its central bank coffers. The World Gold Council has reported that the Central Bank of the Russian Federation has more than doubled its rate of gold purchases over the past decade, making Russia the largest official purchaser of central bank gold in the world. WGC says, “Over the past decade, the bank has added more than 1,250 tonnes to its gold reserves.” In the second quarter, Russia’s gold purchases accounted for 38% of all gold bought by all global central banks.
Down under, Australia’s Perth Mint, which refines over 90% of the newly-mined gold in Australia (the world’s #2 gold-producing nation, after #1 China) reported that their sale of gold products doubled last month, while silver products rose 78%, from 392,091 ounces in August to 697,849 ounces in September. Reuters reported that Perth’s September gold sales doubled to 46,415 ounces from 23,130 ounces in July.
The Second Annual United States Mint Numismatic Forum
The United States Mint has invited me to attend their second annual Numismatic Forum to be held on Tuesday, October 17, 2017, at United States Mint headquarters in Washington. We will look at the road ahead for the numismatic hobby and see what else we can do as stakeholders to reinvigorate it.As a former authentication seminar instructor, I hope to converse about what the Mint is doing to deter counterfeiters.
The 2017 Numismatic Forum promises to be a lively, informative, and educational day of discussion focusing on current and future offerings through the lens of a numismatic product’s journey from conception to production. We hope to leave with a much better understanding of the unique, creative and sometimes challenging process resulting in the numismatic products offered collectors.
During the first Numismatic Forum last year in Philadelphia, we spoke, and they listened! I look forward to updating you on what we discussed in Philadelphia and how they responded. The United States Mint wants to continue to create a more collaborative environment between the public and the Mint. This year’s forum promises to be another valuable sharing and networking opportunity for all of us.
Mike Fuljenz is the Official Precious Metals Expert for Townhall Finance