05 Mar A Review of Gold 2017
According to the World Gold Council, gold demand in general ending 2017 saw a minor decline. When looking at the performance, it seems disappointing compared to other investment vehicles. It is, however, important to see that an asset such as gold has proven itself a resilient portfolio option. Read on for the full review.
Price movement of 2017 can be summed up as driven by the below key factors:
- Performances of the international equity markets have repeatedly capped attempts for precious metals to rally with significance
- The US economic flourish has given the Federal Reserve reason for interest rate hikes, hindering investments in gold
- The USD Index has declined by 10%
- The unpredictable geopolitical landscape internationally have played and will continue to play a role in underpinning the price of gold
- The cryptocurrency wave has contributed to moving some speculators away from their interest in gold in the short term
Categorically speaking, there are some hits and misses with gold. Highlights as below:
China retains its crown as the world’s largest gold market for the fifth consecutive year. 2017 saw an increase in gold jewellery demand since 2013 (3% year over year), a dramatic recovery from the 19% drop in 2016. Appetite for gold was especially robust in lower-tier cities as China’s newly accumulated wealth spread from affluent coastal areas to less developed regions according to Zhang Yongtao, deputy chairman of the World Gold Council.
India’s gold imports surged 67 percent in 2017 from the previous year to 855T as jewellers replenished inventory amid a rebound in retail demand. In second place after China, the growth was caused by the depreciation of the Rupee, less stringent AML regulation for jewellery, and improved rural sentiment – not unlike the trend in China as illustrated above.
Gold ETF’s experienced a sharp decline from the highs of 2016. The pace of growth slowed sharply in the second half of 2017, this was expected due to the price increase of gold since August (around 14%) which encouraged a degree of profit taking instead of new buying.
BARS AND COINS
The US recorded the biggest drop in demand, falling from 93T to 39.4T, the lowest level since 2007. A main reason is that many US investors were drawn to the equity and cryptocurrencies markets and shelved their interest in precious metals in the short term.
China was the largest market for bars and coins in 2017 with 306.4T, 8% more than in 2016. Investment sentiment of the weakening Yuan drove the increase in demand initially, with the demand back to normal levels as the year progressed.
Central banks’ net purchases totalled 371T in 2017, 5% lower than that in 2016. The growth in global gold reserves continue to be dominated by a handful of large purchasers. Russia increased its gold reserve by 14% by the end of the year. This marks the eleventh year of growth in Russia’s gold reserve and the third consecutive year they purchase more than 200T.
Notable purchase of 2017 was by Turkey. The central bank began a buying spree and the reserves were increased by an average of 11T a month, reinforcing Turkey’s view of gold as a key reserve asset.
The total global supply declined from 2016 to 2017 by 4%, while mining production rose fractionally with 3,268.7T. China, the world’s largest gold producer, issued stricter environmental regulations which imposed the closing of some operations and led to a decline in production. Meanwhile Tanzania, USA, Brazil and Mali also experienced a negative change in production since 2016.
Canada, Indonesia and Russia are notable countries that saw an increase in production due to new projects and mining sites.
For gold, it started with a low on 3rd Jan 2017 at $1,146 European hours and since then, regained itself at $1,200 in Feb and held steady largely for the rest of 2017. Gold touched its year high of $1,357 on 8th September 2017 and with the recovering dollar, the last quarter has seen gold hovering at below $1300.
In conclusion, gold and other precious metals have generally moved in an orderly pattern for most of 2017, with rallies unable to create significant momentum due to the upward movement of the stock markets. Considering gold ended the year with 7% gains, a roughly 12% return on an asset which is easy to liquidate and manage, and accepted internationally, these are certainly signs of a solid investment. Gold, in the grand scheme of things, has weathered a risky environment driven by record level equity hikes in 2017, and is definitely a steady performer. J. Rotbart & Co. are experts in the procurement, buyback, transport and storage of your gold. We look forward to hearing your feedback and feel free to get in touch with us anytime for your precious metals needs!