Gold Market Update – August 2013

The price of gold fell by a notable 4.3% in July, but has stabilised more recently, recovering by a modest 2.8% over August to date. Spot gold is currently around $1,380 an ounce. The price of gold will certainly record its first annual decline since 2000.

By

  • The price of gold fell by a notable 4.3% in July, but has stabilised more recently, recovering by a modest 2.8% over August to date. Spot gold is currently around $1,380 an ounce.
  • The price of gold will certainly record its first annual decline since 2000. Compounding the recent weakness is the relative strength of other asset classes that have benefited significantly from extremely loose monetary policy settings.
  • Latest data from the World Gold Council show that identifiable gold demand fell further in the June quarter, down 13.7%, consolidating a 17.0% decline in the March quarter. The decline largely reflected a sell off in investment. However, total quarterly supply of gold rose by 4.2%, to around 970 tonnes, driven by a seasonal pick up in mined production.
  • The Indian rupee has plummeted over recent months, making the purchase of gold more expensive for Indian buyers. Despite this, gold imports appear to have held up well. In response, the Indian government introduced a suite of restrictions aimed at reducing gold demand and strengthening the rupee.
  • The gold price remains vulnerable to future changes in policy settings. With the market now expecting the US Fed to begin tapering its asset purchase program in September, the US dollar has strengthened limiting demand for gold as an alternative investment.
  • While the risks to gold appear skewed to the downside, it is quite possible that other asset classes that have benefited from loose monetary policy will fall in value as QE is unwound, underpinning investor demand for gold.
  • Potential triggers of a rising gold price include a surge in inflation (either real or expected) or the re-emergence of fears about a global recession. We do not anticipate either of these events occurring.

For further analysis download the full report.