Nope, Still No 'Gold Rush' at Record High Prices
Tuesday, 11/07/2023 11:21
Gold investing net negative in bullion bars, ETFs, coins...
AFTER Covid, Russia invading Ukraine, the mini-crisis in US banking and now the awful news from Israel and Gaza, it's hard to deny that gold loves a crisis as the price makes another attempt to break and hold $2000,
writes Adrian Ash at BullionVault.
But contrary to any headlines claiming there's some kind of gold rush right now, profit-taking continues in physical bullion, and it's speculative betting in the Comex futures and options market which looks more likely to determine the direction of prices near term.
That's because investing in physical gold was net negative as prices set new all-time highs last month, with people taking profits at the fastest pace in more than four years amid the dreadful violence in Israel and the ensuing bombardment and invasion of Gaza.
Gold ended October with a new record-high monthly finish in US Dollars, up 6.8% at $1997 per Troy ounce.
The UK gold price in Pound set a month-end record too, jumping 7.4% to £1645, while the Euro price added 6.5% to €1883 – also setting a new month-end record, as did gold in most other major currencies, including the Chinese Yuan and Japanese Yen.
Gold investors' response? The number of people choosing to buy gold across last month rose by 16.4% from
September's 4-year low on BullionVault, but the number of sellers jumped by 69.3%.
That was the sharpest rise since and also reached the most since March, when the 'mini crisis' in regional US banking sent gold prices soaring towards new all-time highs. And together, those trades pushed the Gold Investor Index – a unique measure of actual trading behaviour among the world's largest single pool of private investors in physical precious metals – down by 1.4 points to 51.8, the lowest since January's 3.5-year low of 50.6.
A reading of 50.0 would signal that the number of people starting or adding to their gold holdings across the month exactly matched the number reducing or selling all of their holdings. The
Gold Investor Index set a decade peak of 65.9 as the first-wave Covid crisis began in March 2020. It was last
below 50 in June 2019 with a reading of 49.1.
In contrast to gold bullion, global stock markets in contrast lost 3.0% in Dollar terms across October, the third monthly fall in a row on the MSCI World Index. Major Western government bond prices also fell, with longer-dated US Treasury prices dropping 5.8% across the month.
So once again, a crisis has sent gold prices soaring as other asset classes fall, confirming the precious metal's value as a form of financial insurance. But rather than rushing to buy gold, private investors as a group have used these latest record highs to take profit and rebalance their position overall.
DppsVault users as a group sold 67.2% more gold than bought on average each day last month, with net selling totalling 470 kilograms in October, the heaviest one-month liquidation since June 2019 (775kg).
That cut the total quantity of gold now securely stored and insured in specialist, independent vaults in each client's choice of London, New York, Singapore, Toronto or (most popular) Zurich by 1.0% to the smallest since May 2022 at 47.4 tonnes, 1.5% below end-August's record high.
Yet the value of those bullion holdings rose to new highs, up 5.7% in Dollar terms to $3.0 billion (up 6.4% to £2.5bn, up 5.5% to €2.8bn) and gold's 12-month average price has now risen above $1900 per Troy ounce for the first time ever, putting it on track for a fourth consecutive full-year annual average record.
What about other physical bullion flows?
Exchange-traded products tracking the price of gold have now shrunk for five months running, with liquidation in giant US
gold ETFs the GLD and IAU taking them to the smallest since the start of the Covid Catastrophe in early 2020.
Coin stores across Europe and North America are meantime
glutted with second-hand product as their customers also sell at these all-time highs. New buyers remain few and far between thanks to cash-in-the-bank offering the highest interest rates for well over a decade.
Yes, China's household gold demand is running strong, but that contrasts with India's subdued appetite at these prices ahead of the key Diwali festival. And while central banks continue supporting the gold price with record purchases for their bullion reserves (led again by the People's Bank of China), the real driver of October's rise through $2000 per Troy ounce was a
frantic turnaround in Comex gold derivatives trading.
Hedge funds and other speculative players were caught short by Hamas' dreadful attack of 7th October. As a group, they then rushed to close out and get long, boosting their net bullish position in futures and options contracts at a near-record pace, inviting physical bullion investors to take profit.
In contrast to gold, the Silver Investor Index rose in October, gaining 0.9 points to reach a four-month high of 51.6 as the price of the more industrially-useful precious metal edged just 0.5% higher against the Dollar to $23.30 per Troy ounce (up 1.3% in UK Pounds to £18.35, 0.1% in Euros to €21.78).
Net of investor selling, DppsVault users added 3.0 tonnes to their silver holdings as a group, only the fifth monthly inflow of the last 12 months. That took the total quantity securely stored and insured in each client's choice of London, Singapore, Toronto and – most popular – Zurich up to 1,243.7 tonnes, higher by 0.2% from September's 15-month low.
More widely, October's terror attacks in Israel and the ensuing invasion of Gaza saw the number of first-time investors in precious metals worldwide rise by 26.8% from September's figure at BullionVault, led by a 44.6% jump in the monthly count of new Eurozone users with the UK and USA lagging the global rebound with a rise of just 9.6% and 14.3% respectively.
But that still left October's count of new precious metals investors worldwide running 30.6% behind the prior 12-month average, down 16.7% across the Eurozone, down 39.2% in the UK, and down 61.8% in the USA.
Bottom line? Rising interest rates and record-high gold prices are combining to deter new investors in precious metals as existing investing positions are trimmed to rebalance. And contrary to what some headlines might claim, the awful news from the Middle East has not, as yet, overcome that drag on the investment bullion market.
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