What the end of Q2 says about the future of gold

05 August 2022

In this week's market report:

Wrapping up Q2 & H1
What this could mean for the future
Gold demand trends in Q2

Dear Investor,

US Dollar Gold Price

Source: Trading View
(Click to enlarge)

Gold continues to surge: Following last week's late strength, gold rose a further 2.07% this week to $1,792.56 USD an ounce, creating a quick 14 day climb of 5.66%.

Silver back in the fight: Silver has followed in gold footsteps, sustaining its gains for another week by 1.06%, its price jumping up to $20.21 USD.

Platinum up: Platinum leads the recovery race, rising by an impressive 4.95% this week to $933.5 USD.

Palladium stays up from earlier high: Palladium steadies after last week’s 10% surge, ending the week at $2070 USD, a stable 0.72% down.

Gold's performance in July and Q2

Gold had a tumultuous month with a mid-month drop of 6.2%, and despite rounding out Q2 in a strong recovery, its rally in the last two weeks did not sufficiently offset earlier losses, leaving July 3.5% down.

Sources: Bloomberg, World Gold Council

The World Gold Council indicates that the performance of gold, illustrated by their Gold Return Attribution Model (GRAM), was influenced by:

Momentum: significant outflows from global gold ETFs and a further drop in gold futures positioning, reaching net short for only the fifth time since the series was introduced
Risk and uncertainty: Weaker Brent crude prices on softer growth data and lower implied volatility also contributed to gold’s weakness
Opportunity cost (FX): Continued dollar strength, which only reversed in the second half of the month
Opportunity cost (rates): Falling bond yields, on weaker growth expectations in the latter part of the month provided a boost to gold.

Read on here.

Sources: Bloomberg, World Gold Council; Disclaimer

What this means for the future

In terms of looking forward, the World Gold Council claims, “Historical analysis suggests that current futures market positioning in gold, the US dollar and US 10-year Treasury combined could signal a good probability of positive forward returns for gold.”

Sources: Bloomberg, World Gold Council

While the activity of futures demonstrates only a portion of total volume in the corresponding markets and should be observed simultaneously with other indicative metrics, this data can indicate positive returns from gold 80-97% of the time over the following 3-12 months.

Gold demand trends as of Q2, 2022

The WGC details in their Q2 Gold Demand Trend report the apparent ‘softening’ of gold demand in the past three months, citing an 8% decrease y-o-y at 948t, however also report that ETFs were responsible for H1’s recovery.

Demand, identified in six industry-based categories, is summarised in the report as follows:

The LBMA Gold price PM averaged US$1,871/oz in Q2, 3% above the Q2’21 average. However, this comparison conceals the 6% decline in the price during the most recent quarter, pressured by rising interest rates and the rocketing value of the US dollar.
As the gold price fell in Q2, gold ETFs lost 39t, giving back some of the strong Q1 gains. Net H1 inflows totalled 234t compared with 127t of outflows in H1’21.
Bar and coin investment (245t) was unchanged from Q2’21 as a sharp drop in China was offset by growth in India, the Middle East and Turkey. The H1 total saw a 12% y-o-y drop to 526t on compounded Chinese weakness.
Q2 jewellery consumer demand reached 453t, 4% higher y-o-y, although the comparison is with a fairly weak Q2’21. Total H1 jewellery demand of 928t was 2% below H1’21.
Central banks continued to buy gold. Global official gold reserves grew by 180t in Q2, taking H1 net purchases to 270t.
Technology demand dipped in Q2, down 2% y-o-y to 78t on weaker demand for consumer electronics. H1 demand was fractionally lower as a result at 159t.

What this says for gold demand in H2 lacks clarity. H1 concluded as the third largest H1 since 2010, thanks to the amalgamation of ETF, bar & coin and OTC demand, which could set the precedent for an even stronger H2, especially with the strengthening of the US dollar. However, the weakness observed in Q2 regarding ETFs may also lead to some weakness in the second half of this year.

Sources: World Gold Council

However, irrespective of the unclear path in H2, the WGC have indicated a strength in bar and coin demand, being predicted as staying ‘healthy’ in H2. Thus, many investors are choosing to add an ABC Bullion 50g, and 100g Gold Cast Bar to their portfolio, as well as our extensive range of coins.