New Gold Rush!

NEW GOLD RUSH!

Investors of West offset soft demand of East as record highs were reached by ETFs helping pushing the price and Indian and Chinese consumers are selling the precious metal.

This year, prices were pushed to a record high by joined investors including the world’s largest hedge fund Bridgewater Associates in buying into the latest gold rush. During the second quarter, Mr Buffett’s Berkshire Hathaway bought a $565m stake in Barrick Gold, the world’s second largest gold miner. Shares in Barrick, which mines in Africa, Latin America and the US, have risen 37 per cent since the beginning of April.
Furthermore, in the second quarter, Bridgewater invested in gold-backed exchange traded funds allowing investors to buy physical gold like a stock, worth $316m, according to company filings. Consequently, a rise in the gold price from a low of $1,160 in the summer of 2018 to a record high of $2,073 an ounce in August 2020 was triggered by western investors, making the precious metal one of the best performing financial assets on the planet.

Growing fears over the economic impact of coronavirus and negative bond yields have seen more than $60bn invested in gold-backed ETFs this year, 50 per cent more than in 2009 during the financial crisis. The pandemic has convinced investors that gold belongs in their portfolios as a hedge against frothy equity markets, rock bottom interest rates and a fall in economic output. In India and China, demand this year has been at best tepid, with buyers in the two biggest consumer markets selling their gold holdings, or borrowing against them as prices hit record highs in local currencies.

In China, gold is selling at a $53 an ounce discount to global markets due to the weakness in domestic demand and restrictions on exports of the metal. With retail consumption a key signal of the commodity's strength for institutional investors, it is a divergence that could threaten gold’s rally if western demand wanes, as it did after the financial crisis when gold prices collapsed from a high of $1,920 an ounce in September 2011 to nearly $1,200 in 2013. Gold ETFs now make up 35 per cent of global gold demand compared with just 8 per cent a decade ago, but inflows have started to slow. The world’s largest gold ETF, the SPDR Gold Shares, registered withdrawals of money in September for the first time in eight months.

An abrupt halt to gold’s rally would hurt some of the world’s largest investors and remove one of the few bright spots in global stock markets outside of large technology shares. It would also lead to losses for retail investors who face an uncertain job market due to the pandemic and continued low interest rates on savings accounts. Gold prices have fallen 9 per cent since August’s high, while shares in gold miners have fallen by 13 per cent.

Half of consumer demand for gold comes from China and India, combining account for more than half of global gold purchases. But demand fell by 56 per cent in India in the first half of this year, and just over half in China, although Indian demand picked up in August. In India the precious metal plays a uniquely important role in family, festive and religious occasions. The South Asian country holds the largest stock of gold in the world, according to UBS, with 25,000 tonnes owned by households and stashed in temples. Even for investment, many Indians traditionally prefer to hoard the physical metal rather than buy into ETFs or other schemes.
This year, gold bars have been shipped from Asia to vaults in the US and London via refineries in Switzerland to back the rising demand for gold ETFs.

However, while Covid-19 cases are increasing, governments are starting to panic again and economies are facing down the barrel of a second lockdown. Therefore, the situation should be a perfect storm for gold since there is too much uncertainty worldwide to be short of gold!