gold bullion bars

The World Gold Council recently released its comprehensive “Gold Demand Trends” report for 2016. The analysis provides a number of interesting insights to factors influencing gold prices, and the overall conclusions are bullish for the yellow metal in 2017. 1

Investing in Gold Soars

Of particular note to long-term investors is the continued movement of “smart money” to gold holdings. The Council notes that investment in gold hit a four-year high, and set historic levels in several categories. Demand for bullion and coins was consistent at 1,029.2 tons early in the year, and buying increased in Q4.

Inflows to ETFs were the second highest ever recorded. This was all part of a growth in demand of 2 percent (4,308.7 tons), driving gold prices up just over 8 percent for the year. Investors are quick to note this large net increase in spite of giving back some earlier gains prior to the U.S. elections in November—gains that many believe will return when this period of market optimism passes.

Gold Demand in Other Sectors

  • Gold investing compensated for a decline in the use of gold in jewelry. This decrease is seen as very short term, caused by a softening of the economy and incomes in China and significant demonetization efforts in India.
  • Although 2016 was the 7th year in a row that central banks were the net purchasers of gold, the quantities they’ve been buying have decreased. This trend was modified only because of major foreign exchange pressures on central banks. Ongoing buying reflects concerns about global financial stability.

How 2016 Gold Trends Impact 2017

While the numbers are just in for the full 2016 gold market, it is already evident that some of the trends set in that year have affected Q1 2017 and could continue to impact gold prices this year.

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For example, there is a full expectation that demand for gold will not only resume its normal rate in India, but also there will be additional buying to make up for the shock policies of the government late in 2016. 2

Investing in gold continues to be heavy, and the action in gold bars and gold and silver coins is of particular interest to long-term buyers. Seen as an indication of market confidence, this buying is increasing even in the face of headwinds coming from the securities market rally.

In fact, the growing probability of a stock market crash has many expecting more upward pressure on the price of gold. This possibility may also affect central bank buying as the global economy continues to move forward on a shaky basis.