The World Gold Council just released its “Gold Demand Trends Q2 2013” report today, and the numbers are noteworthy to all manner of investors — from precious metal speculators to gold mining stock traders.
Key findings include:
- Gold jewelry demand was up 37% globally in Q2 2013, led by Indian and Chinese consumers. Thanks to low prices, the volume of gold by weight hit the highest levels in five years.
- Record bar and coin demand was also tallied in the second quarter, with a 56% surge in value terms.
- Technology gold demand saw a marginal increase, up 1% in Q2 2013.
- Total supply shrank about 6% in Q2 2013, driven by a 21% decrease in recycling that offset a modest 4% increase in mining production.
Some goldbugs out there will call this a sure sign that gold has to rise from current pricing.
But frankly, gold demand stats are a gross oversimplification of how gold should perform as an investment, or how major miners like Newmont (NEM), Barrick Gold (ABX) and AngloGold Ashanti (AU) should perform.
Where Gold Comes From
For starters, investment demand and jewelry demand are the lion’s share of gold demand. Take this chart from American Bullion below and look at demand trends through the end of 2012. “Central bank demand” sounds sexy since it’s fodder for the fiat money crowd and Bernanke-haters who believe the Fed is evil … but it’s not meaningful.
Furthermore, while it’s important to look at buyers of bullion and aggregate demand by weight, that metric alone tells you nothing.
Let’s say gold prices crashed to $137 an ounce instead of current pricing around $1,367.
In this model, folks who plan to invest $10,000 in gold either way haven’t made a change in their behavior, but the data indicates they are buying 10 times as much on a weight basis. That’s misleading.
It’s cheaper, so of course you can buy more.
And then you come to the real question of buyers vs. sellers. What about the folks that own existing gold that has already been mined and turned into bullion, but who are selling on the secondary market? If you are only looking at the value of the precious metal based on the small amount being brought out of the ground and where it goes, you are missing the point.
At any rate, supply-and-demand stories are good fodder for precious metal junkies. However, the real story is pricing — which is driven in a big way by sentiment and investors.
The rest is just noise.
- The latest gold demand trends. (World Gold Council)
- Greenlight’s David Einhorn is investing in miners, not bullion. (Reuters)
- Gold is a popping bubble. (MarketWatch)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.