Precious Metal Demand Surging Despite Gold Prices Remaining Weak
To examine where gold prices are headed next, look at the demand for the precious metal. It suggests that gold is selling at a very deep discount.
As it stands, we are seeing a significant amount of buying, and there’s one thing in particular that investors really need to know. Those who are buying don’t really care about the gold prices; they want the metal regardless.
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Some of the biggest gold bullion buyers that investors need to pay attention to are the central banks. They have been net buyers of the precious metal for a while, for 23 consecutive quarters (as of the third quarter of 2016). In these 23 quarters, we have seen gold prices go from below $1,000, to close to $2,000, and now around $1,250. Their buying didn’t nudge gold prices at all.
Mind you, it wasn’t the major central banks like the U.S. Federal Reserve, or the European Central Bank (ECB) accumulating gold. It has been central banks that have very little gold compared to overall foreign reserves. And, don’t for a second think that their buying will stop anytime soon.
Consider the Central Bank of Russia, for example. It has been active in buying gold since the 2008 financial crisis. In October, the Central Bank of Russia bought the most amount of gold in a month since 1998! It bought 48 tonnes (1.3 million ounces) of the precious metal. (Source: “Russia Gold Buying In October Is Biggest Monthly Allocation Since 1998,” GoldSeek, November 23, 2016.)
Central banks aren’t the only ones buying gold.
Investors are stepping into the markets, too. By this, I mean we are witnessing massive inflows in exchange traded funds (ETFs) that hold gold bullion and other related products.
Look at the numbers yourself: in the first three quarters of 2016, ETFs and other related funds witnessed gold inflows of 725 tonnes. In 2015, these investment instruments had outflows of roughly 128 tonnes. (Source: “Gold Demand Trends Q3 2016,” World Gold Council, November 8, 2016.)
You must remember: the exchange traded products were one of the biggest reasons that escalated the sell-off in the gold prices back in 2013. If these funds are witnessing inflows, it says investors’ trust in the precious metal is increasing.
Also, investors must think global when looking at gold prices. With this said, please look at the chart below of gold prices in Canadian dollar terms.
Chart courtesy of StockCharts.com
In Canadian dollar terms, gold prices are roughly 20% below their all-time highs. If investors bought gold near the end of 2013 in Canadian dollars, they would have earned decent returns until now.
Here’s the thing; currencies around the world are witnessing a significant amount of volatility. While gold prices are down in U.S. dollar terms since 2013, they are performing well in other currencies.
Now, let me ask one question: won’t the investors in countries like Canada look at gold and think about owning it? It’s very possible, and it’s only going to increase the demand for the metal.
Gold Prices Outlook Is Bullish, With Much Bigger Gains Ahead
Dear reader, the mainstream media will never talk about gold’s demand. It will only convince you that the precious yellow metal isn’t worth owning, and that—with interest rates rising—gold prices are headed down further.
I remain bullish on gold prices. As it stands, 2016 is on track to be the first year when gold prices rose since 2013. Going into 2017, we could see investors rush in, and this could translate into much bigger gains than we have seen so far this year.
