Physical Gold Bullion, Other Investment Vehicles
While the ETF gold market is large, the global over-the-counter (OTC) wholesale market accounts for most transactions of physical bullion. Hard and fast OTC statistics are hard to come by, but April estimates by the London Bullion Market Association put the amount of gold transferred between accounts at 22.5 million ounces a day, 4.1 million ounces more than the average daily volume in 2010.
The WGC notes that anecdotal evidence suggests that in addition to increasing their interest in ETFs, European investors are accessing gold via the OTC market as well. You can thank the prospect of a Greek debt default and Italy’s own financial implosion for Europe’s increased interest in gold any way they can get it.
In the major gold countries, such as India and China, gold investment has spread beyond direct purchasing of the metal. In India, the high-inflationary environment has increased the launch of gold-backed savings and investment products such as mutual funds that only invest in gold ETFs, as well as hybrid funds that invest both in gold and equities.
In China, anecdotal evidence points to continued strong demand for products such as the gold accumulation plan (GAP) offered by the Commercial Bank of China (ICBC).
Bars, Coins And Jewelry
The second quarter is not traditionally a peak gold-buying season in China, but Shanghai saw 205.3 tonnes of physical gold delivery (bars and coins) during the second quarter — 14.6 percent more than that time last year. Hong Kong also experienced healthy demand, with customers coming from mainland China as well as other nearby countries. Though the official Q2 numbers won’t be released until the Gold Demand Report comes out in mid-August, the WGC says that Chinese jewelry demand from traditional customers remained strong. The report also noted that new customers are being drawn into the jewelry market by an emphasis on design and craftsmanship.
In India, there were stories of coin stocks running out during the holiday of Akshaya Tritiya, though the annual festival season does not begin until August. Gold demand is expected to remain strong as the festival season gets under way.
Finally, many central banks around the world, especially emerging economies, are increasing their gold reserves — a trend that just recently had been going in the other direction. In fact, due to little selling from European central banks, the net global central bank purchases during the first two quarters of 2011 are higher than seen in all of 2010.
Conclusion? Doing Just Fine, Thank You.
The moral of the story here is to, as always, look under the hood. Many investors saw exotic headlines about the decline of interest in GLD and assumed it meant that gold demand was softening worldwide. This created a head-scratcher while looking at the strong price action in the quarter. But under that hood, we find an engine of global demand that’s purring like a kitten.