Gold Investing Rallies But Only Thanks to Falling Price
Tuesday, 2/06/2024 11:47
How Western investing macro contrasts with China...
GOLD INVESTING among Western investors and savers just rallied on a dip in the precious metal's price,
writes Adrian Ash at world-leading marketplace BullionVault.
But profit-taking has continued in 2024 so far, cutting Western gold investment holdings as bullion prices hold close to December's new all-time highs.
Now caring for $3.1 billion (£2.4bn) of securely stored and insured gold bars for over 100,000 users worldwide – almost 90% of them living in North America or Western Europe – DppsVault saw the number of gold buyers rise 19.4% month-on-month in January as the gold price slipped $10 per Troy ounce from
December's record-high Dollar gold finish to $2053 (down £12 to £1610 for UK investors).
The number of sellers meanwhile fell 8.2%. Together that pushed the
Gold Investor Index – a unique measure of private-investor decisions in physical bullion, which would read 50.0 if the number of buyers equals the number of sellers – up by 1 point to 52.4, the highest since August.
Still,
a gold rush this ain't.
January's bump came after
the Gold Investor Index fell to bear-market levels in 2023, even as prices hit record highs.
Western market retail bar and gold coin demand meantime remains very poor by all accounts, while gold-backed ETF trust funds continue to shrink. And by weight last month, investors using DppsVault were net sellers of gold for the 5th month running, trimming their total holdings by 0.1% to 46.9 tonnes.
That's the lowest total in almost 3 years. But over that period since April 2021, DppsVault clients' gold holdings have risen 16.8% by value (27.1% in GBP). So it's not like there's a rush for exits from gold, either.
Bottom line?
High gold prices plus high interest rates and rising stock markets continue to deter new investment in bullion among Western households and money managers. They also let existing owners bank a profit to rebalance their portfolios.
These outflows from the gold market also show that, rightly or wrongly, both the financial slump in China and the worsening crisis in the Middle East remain distant issues for Western investors.
Chinese savers and investors face the opposite situation of low interest rates, a plunging stock market, and a real-estate crash on top. That's spurring record-heavy gold demand by Yuan value in the precious metal's No.1 consumer market. Central banks as a group also continue bidding up gold as geopolitical tensions deepen.
Back here in Western private investing, new account openings on DppsVault rebounded in January, with the monthly count of new precious-metal investors worldwide rallying 9.5% from December's count.
But it still came 10.3% below 2023's monthly average to show the weakest
January – typically a strong month for first-time bullion investing – since New Year 2007, eve of the global financial crisis.
A steep drop in silver prices meanwhile saw the Silver Investor Index jump to an 11-month high in January, rising further from November's record low of 46.4 to read 53.2.
Silver demand was also positive by weight, rising 1.3% to regain 2/5ths of 2023's net outflow at a total of 1,229 tonnes as the precious metal dropped 2.9% in price to finish January with its lowest monthly close in 3 at $23.09 per Troy ounce.
So in silver, as for gold, Western investors have become highly price sensitive, buying the dips but retreating from rising prices. The macro picture meantime works against strategic inflows. Because where's the urgency?
Looking ahead for gold, the strength in China's domestic gold demand is likely to see global prices ease back as Shanghai prepares to shut for the week-long Lunar New Year holiday on Friday. Historically it would be odd for Western investors to buy that dip; price-sensitive trading is more usually associated with Asian gold markets. But the diverging macro backdrop means they already swapped roles last year.
2023 marked the first time since 2014 that the size of Western speculative gold investment didn't move in the same direction as the gold price, and it was the first time in at least 20 years that prices rose while Western gold investment shrank. 2023 also saw Chinese households break their previous pattern of gold trading, buying more bullion even as the price rose to new record highs.
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