Welcome to illuminati Silver, we tell you
the truth about silver. Today is Thursday 10th September 2015 and
we are going to discuss Gold Demand and Supply and Price direction.
According to the World Gold Council’s Second Quarter Report Published in August 2015, “Gold
demand dropped 12% to a six year low of 914.9 tonnes in a challenging quarter. Despite pockets
of strength, demand was down in all sectors. Meanwhile, supply declined by 5% year-on-year.
It further added: “Jewellery demand came under pressure from negative consumer sentiment,
while investment was a casualty of direction-less prices and stock market gains.” …. In
Q2, jewellery declined by 81.1 tonnes year-on-year, mainly due to weakness in the Indian and Chinese
markets. In India, the percentage fall in this quarter was 23% compared to the previous
year and In China it dropped by 5% over the same period. The onset of the festival and
wedding season in India in Q4 suggests healthy prospects for jewellery demand for the remainder
of the year, with the caveat that this assumes “normal monsoon rainfall.”
On the positive front, Gold investors in Europe – in both retail and institutional camps
– boosted their demand for bars, coins and ETF’s because of the Greek crisis and the
possible threat of European contagion. Outside of Europe, however investors did not seem
to view the risks associated with Greece as systemic.
Chinese bar and coin demand remained broadly stable – up 6% but from a low base. However,
Investment demand in India is down to a 6 year low having contracted for a third successive
quarter, declining by 30% to 36.5 tonnes. Looking at 2013 and 2014 figures, we can clearly
see why gold prices fell yet again. With total gold supply having risen from 4283 tonnes
to 4402 tonnes and demand having fallen from 4283 tonnes to 4242 tonnes – there is little
wonder we have experienced a price decrease. With the Gold Council figures estimating a
12% decline in the demand for gold and only a 5% fall in the supply, from a fundamental
point of view, unless things change dramatically over the next 3 months, 2015 will prove to
be yet another year of declining prices. In fact, according to ABN Amro, they predict
that gold will hit $1,000 by the end of this year and as low as $800 in 2016
Having drifted for about a week, gold futures made a more definitive move on Wednesday – and
the direction was down. A strong US Labour Department report, which
according to Mining.com revealed the number of job openings in America is at a 14-year
high, prompted a surge in the dollar as hitherto negative bets on whether the Federal Reserve
will increase rates next week became more even. Gold moves inverse to the greenback
– and with no inflation against which to hedge, and at a time of weak physical demand,
there is not much in the way of good news. Those hoping for a recovery will be looking
to the ongoing concern over China to help prop up prices, after the latest data published
last night pointed to weakening producer prices and the threat of deflation. If fears of slower
Chinese growth prompt a devaluation of the renminbi and a ‘currency war’, gold may just
recover some of its appeal as a safe haven. Barclays said in a note quoted by The Bullion
Desk “that even the September decision, if it is a hold on rates as is now widely
expected, would offer only ‘limited support’ given that a slightly later rise is already
“priced in” to the market. Even the most dovish analysis suggests that rates will increase
either before the end of this year or very early next year, and this will hit non-yielding
gold.” The value of the US dollar typically follows
an inverse relationship with commodities. When the dollar strengthens against other
major currencies, the prices of commodities – such as gold – typically drops. When the
dollar weakens, commodities generally move higher. The main reason for this is because
most commodities are freely traded in international markets and prices are quoted in US dollars.
Foreign buyers will purchase commodities with dollars, so, when the value of the dollar
drops, they will have more buying power, and demand increases. Similarly, when the value
of the dollar rises, they have less buying power and commodities become more expensive,
muting demand and sending commodity prices lower.
The Economic Times of India, recently summarised 8 key reasons why Gold prices have fallen
and may continue to do so: 1) LIKELY RATE HIKE IN US
With the US Fed likely to raise rates first time in nearly a decade, the fear of recession
in the world’s largest economy is easing. Iran nuclear deal has reduced chances of a
conflict in the Middle East, and Greece too has avoided default. As geopolitical risks
wane, investors are selling gold. 2) LOWER DEMAND FROM CHINA
The economic boom in China led to huge demand for gold. With the country now facing an economic
slowdown, in the first six months of 2015, demand has fallen by about 24%, leading to
lower prices. 3) STRENGTHENING DOLLAR
Like crude oil, gold is also priced in dollars. A stronger dollar means lower price of gold.
With the US economy stabilizing, dollar has strengthened against major currencies.
4) LOW GLOBAL INFLATION Gold is a hedge against inflation. The easy-money
policy after the 2008 crisis led to fears of high inflation. But inflation stayed low
in the US, Japan and Europe. Investors are now reluctant to buy gold.
5) 5-YEAR FEAST ENDS For gold, it is said that after 15 years of
famine, there is a 5-year feast. After the US slipped into a recession in 2008, gold
rallied and peaked at $1,900/oz level in late 2011. Then the slide began. Analysts are now
looking for price support at $1,000, and if that is broken, then at $700.
6) NO DIVIDEND Gold does not earn any interest or dividend.
If the US raises rates, interest income from US bonds will also rise. So investors are
preparing to move away from gold to bonds. 7) CENTRAL BANKS BUYING LESS
Traditionally among the largest gold buyers, central banks, especially from emerging countries,
are buying less. But they are piling up dollars to counter outflows once the US raises rates.
India’s Forex kitty in gold stands at 5%, down from 7% 5 years ago.
8) ETF OUTFLOWS With gold prices falling, gold ETFs are facing
redemption which is forcing them to sell the yellow metal. This has pushed gold prices
into a vicious cycle. So there we have it. Despite what you are
hearing from the pumpers on You Tube and the hype they are creating because dealers are
currently running short of coins and bars, gold demand throughout the World is down,
and is forecast to continue to fall. So those who were expecting a Gold to Silver Ratio
correction, may indeed have their wish, but rather than Silver prices rising, if the ‘so
called experts are correct’ it will be the gold price falling that will achieve this.
Frankly we ourselves, still favour gold over the short to medium term compared to silver
– though we are not major buyers of either at this time. However, should the economic
data that we are being fed proves correct and the world’s economies are slowly beginning
to grow, which many doubt, then silver will become the better ‘bet’. Let’s just
see what Auntie Janet does next week before any serious moves or commitments are made.
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Silver Illuminati owners come from a background of Banking, International Wealth Management
and Economics. Having now retired from these worlds we are not qualified to give investment
advice. Therefore, this and other productions must not be deemed to be giving such advice
and merely represent the personal views of its owners.