SPDR Gold Trust (ETF) has had a tough time over the last few months as the price of the yellow metal sinks ahead of a forecast rise in US interest rates before the end of the year. It seems that the lower price of gold, combined with some other moves in the market, have lead to stronger demand for the metal from some buyers. US retail buyers bought gold at the highest rate in five years over the summer, while a “buying spree” is being reported on the other side of the world.
The World Gold Council, in a report released on Friday, said that demand for the metal hit $40.8B over the third quarter. That’s the highest level of gold demand since 2013, and up 8 percent over the same period in 2014. That rise in demand was driven, says the industry body, by higher buying among US retail investors.
Small investors bet on Gold
The report suggested that much of the demand increase was seen in buying of coins and gold bars. Those investments are regularly part of the portfolios of small time investors who are looking to secure their holdings against inflation or other future market uncertainty.
At the same time as retail buying spiked inside the US, China saw a “buying spree” in the gold market in the third quarter. Alistair Hewitt, who authored part of the report said “The price dip, the stock market turmoil, the depreciation of the yuan – it gave people an opportunity to reappraise their outlook and as a result you saw surging growth in bar, coin and jewellery demand.”
Mr. Hewitt reckons that there’s a distrust of some financial markets and investors are looking ” to own something tangible, something real, something which they understand.” In his mind the yellow metal “is something that taps into these strong emotions, which is why we’ve seen such strong demand in Europe.”
SPDR Gold Trust (ETF) still in the doldrums
It seems, despite the higher level of gold demand noticed by the World Gold Council in the third quarter, that there is more than enough supply on the market to sate the demand of retail buyers. SPDR Gold Trust (ETF) has fallen from a high of close to $114 in October, to $103.56 on today’s market.
While buying of real gold, in the form of coins and bars, was up, the World Gold Council said that there was sinking demand for ETFs. The report stated that demand for gold ETF products fell 65.9 tonnes, worth $2.4B. SPDR Gold Trust (ETF) , being the single largest gold ETF out there, was hit hard by the change in demand.
If Mr. Hewitt is right and small traders prefer to buy real metal rather than financial products because of some kind of change in culture, that might reflect poorly on the future of the SPDR Gold Trust (ETF) . For now, however, what really drives the price of the ETF is the price of the metal and, despite demand heading higher, most seem to think it will be a long time before a bull market returns.