Gold Up on Middle East, Ukraine Tensions, But For How Long?

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After falling for most of last year the gold price has been relatively stable this year, some would say becalmed, others rather boring, depending on your point of view or exposure.

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At the beginning of this month, the price rallied from the high $1,200’s to the low $1,300’s per ounce, responsibility for which is being placed on tension in Ukraine and the Middle East, prompting fund managers to pile back into relatively safe investments like gold.

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Such geopolitical tensions are just about all that is holding the price up, though. Reuters recently reported that global gold demand fell in the second quarter, quoting World Gold Council numbers, mostly as a plunge in jewelry, coin and bar sales fell from last year’s record. Demand fell 16% in the April to June period to 964 metric tons, with jewelry off-take, the largest single segment of gold demand, down 30%, while coin and bar buying tumbled 56%. Lower sales from ETF’s this year helped balance out the supply/demand equation as selling from gold backed ETFs is reported to have dropped to 39.9 tons from 402 tons in the same period last year as investors baled out of precious metals in general and gold in particular.

The biggest fall, though, appears to be what had been the rising star of gold consumption, China. Just as China achieved top dog position over India in terms of physical consumption, demand suddenly plummeted this year. According to Bloomberg, purchases in the three months to June dropped 52% year-on-year to 192.5 tons. The World Gold Council reports that almost every Asian economy bought less bullion in the period as demand across the region shrank 46% to 470.9 tons. Current Chinese demand is also said to be weaker on the back of a clampdown on corruption, but that doesn’t explain the fall across the region which indicates a wider sense that current prices are not a bargain and should tensions in Ukraine and the Middle East ease we could see falls back below $1300/oz.

 

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