Speculative Shorts Caused Gold Plunge
[This interview originally appeared on HardAssetsInvestor.com and is republished here with permission.]
Marcus Grubb is the managing director of investment for the World Gold Council, where he leads both investment research and product innovation as well as marketing efforts surrounding gold’s role as an asset class. Grubb has more than 20 years’ experience in global banking, including expertise in stocks, swaps and derivatives.
After the release of the World Gold Council’s quarterly Gold Demand Trends survey, HardAssetsInvestor’s Managing Editor Sumit Roy spoke with Grubb to get more details on the particulars of some of the report’s more surprising conclusions.
HardAssetsInvestor: Given the steep drop in gold prices during the quarter, the supply and demand figures are especially interesting this time around. I noticed a significant divergence in the different demand categories. Why don’t we start with jewelry: Was the spike in demand in that category merely price-related, or is it a longer-term trend of some sort?
Marcus Grubb: You put your finger on it. Although we saw a fall in demand for the quarter of 12 percent, that was largely driven from the investment side. We saw a very big recovery and rebound in the jewelry market. Global demand was up 37 percent to 575 tons.
Quite a lot of that was price driven, and of course a lot of it was concentrated in the two largest markets, China and India. But outside that, you saw strong jewelry performance in smaller countries in Asia, Indonesia and Thailand, etc.
In the U.S. jewelry market, you saw a second quarter of positive demand—the first one since 2005. You’re seeing a recovery even in some Western markets for jewelry, too.
There’s more to it than the price drop.
In Asian markets, that was the key driver, because consumers felt that gold was cheap at these levels, and our surveys indicate they still do. But if you look at the U.S., that’s not the main reason. You’re starting to see an improvement in economic conditions, albeit very slow. Therefore, the increase in jewelry demand in the country is likely to be a longer-term trend.
HAI: In April and May, we kept hearing reports about the massive buying in Asia on the physical investment side. The final numbers seem to bear that out, don’t they?
Grubb: They do; these numbers are pretty staggering. Total demand in India for Q2 was up 71 percent over last year—and last year wasn’t a bad year. Total demand in China was up 85 percent on last year. If you look at the half year, total demand in India is up 48 percent over the last year at 566 tons, while total demand in China is up 45 percent to 600 tons.
It confirms absolutely that physical demand stepped up to the plate. Moreover, it confirms that the measures the Indian government has taken to reduce imports are not having a major effect on gold demand in India.
This week, the NYSE expects to hear from the SEC. What will it mean for ETF investors?
Our annual fixed-income conference is coming up in a little more than a week and I can’t wait.
When it comes to reinvesting dividends, mutual funds have ETFs beat.
With VIX spiking, it’s tempting to pile in or bet against it. Both are a bad idea.