Gold: Demand from investors exceeds that from consumers

Rajalakshmi Nirmal BL Research Bureau | Updated on July 22, 2020

Record buying in ETFs; but hedge funds reduce long positions

Gold prices in the international market crossed $1,866/ounce — a nine-year high with the ongoing economic crisis triggered by Covid-19 and expectations of a second round of stimulus from countries including the US, UK and EU helping the metal.

Easy monetary policy of central banks makes paper currencies depreciate, helping the yellow metal. The rally is also spurred by investors hunting for a safe haven.

According to data from the World Gold Council (WGC), gold-backed ETFs globally recorded their seventh consecutive month of positive flows in June, taking global holdings in gold ETFs to an all-time high of 3,185 tonnes. Between June 2019 and June 2020, the total addition to holdings of gold ETFs across the globe was 659 tonnes. Of this, 307 tonnes was added to gold-ETFs in North America and 316 tonnes in Europe.

Interestingly, in the June quarter, demand for gold from investors (including those buying of coin, bars) was 539.6 tonnes which exceeded demand from consumers of gold jewellery at 325.8 tonnes. Last time such a trend was seen was in June quarter of 2016 but then the prices were far cheaper at $1,182/ounce.


Indian investors have made more money in gold compared to investors elsewhere, thanks to rupee’s sharper drop vis-à-vis USD.

Average gold prices in the June 2020 quarter was ₹36,874/10 gram, up from ₹29,554/5/10 gm in June 2019 quarter – a return of 25 per cent. Gold prices in dollars in this period was up 21 per cent; in pounds, up by 24 per cent; in yen, up by 20 per cent. Investors of gold in China saw a return of 26 per cent, thanks to renminbi being weaker than rupee vis-à-vis the greenback.

Hedge funds cut long

Statistics from the US Commodity Futures Trading Commission (CFTC) shows that investors need to be cautious about gold from hereon.

The CFTC’s Disaggregated Commitments of Traders Report for July 14 that was released on July 18 showed that that money managers reduced their speculative gross long positions in COMEX gold futures by 2410 contracts (in a week) to 177,400. At the same time, short bets rose by 1960 contracts to 42,427. However, net long position (end of week on July 14) stood at 134973 up 3.5 per cent over the previous week. On July 7, net longs were down 6 per cent, week-on-week.

Gold investors need to closely follow the money managers to understand where the hot money is going, in the coming weeks.

Published on July 22, 2020

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