Gold and Silver's High-Price Recession
Thursday, 7/11/2024 12:21
How can bullion prices be rising if no-one is buying...?
So CHINA didn't buy any gold for its central-bank reserves for the second month running in June,
writes Adrian Ash at BullionVault.
Chinese consumers have meanwhile vanished from the country's jewellery stores, and Indian households have also quit buying.
Silver-backed ETF investment funds have grown less than 5% in size from last month's 4-year low, while
gold ETFs ended June at their smallest mid-year size since 2019...
...and
after making out like bandits in 2021-22 retail gold investment dealers and mints are really struggling as high prices combine with high interest rates to crush Western demand for coins and small bars.
Yet the price?
The world's bullion markets this spring set
new all-time gold price highs day-after-day and came within 1 cent of $2450...
...while silver topped $32.50 for the first time since 2012, adding
almost 45% in US Dollar terms inside 11 weeks of silver trading.
Yes, that surge has burnt itself out. But silver ended last week with its highest Friday finish in London since the 11-year high it set in late May, down only 2.2% from that Friday's weekend peak.
Gold meanwhile recorded its 5th highest-ever Friday 3pm benchmark for US and Euro investors...
...and even the British Pound's clear relief at Labour winning a landslide UK election victory over the Conservatives still gave gold its 6th best weekend in history against Sterling.
That's great for investors who bought before the 2024 price jump, nevermind before the 2023 or 2020 rise. But for precious metals mints and sales-teams, today's higher prices look, feel and smell like a bear market in terms of new business.
Gold Eagle sales from the US Mint have dropped by 2/3rds year-to-date. Australia's Perth Mint is laying off staff (albeit fewer than 1/3rd so far of its net hiring in 2022-23). Retail outlets in former market darling Germany face a "state of emergency" as sell-backs keep swamping demand with secondhand coin, draining cash as the last decade's buyers take profit.
BullionVault isn't immune, even though it sells no coins and enables private investors instead to buy and sell large-bar bullion from 1 gram at a time.
Gold just saw its 4th calendar quarter in a row of net selling on BullionVault. While outflows by weight slowed by 2/3rds from Q1's record profit-taking in gold, total client holdings finished June at the lowest end-quarter weight since Q2 2020.
Silver meantime saw its 6th calendar quarter of net selling in a row with record heavy profit-taking by weight. That took client holdings down to the lowest end-quarter level since Q4 2020.
Yet the remaining silver
in BullionVault custody still ended Q2 2024 with a new quarter-end record by value at $1.1 billion...
...and client gold holdings finished June at a new quarter-end record value of $3.3bn.
What's more, gold trading volumes on BullionVault across April-to-June rose 25% by weight from Q1, and at record prices remember, while silver trading jumped 57% with prices at 11- and 12-year highs.
Altogether, that has proved BullionVault's stable, long-term and profitable business model (yet again) while also showing that investors using vaulted bullion to spread their risk are rebalancing their portfolios in 2024. This is far from a rush for the vault door. Which makes a stark contrast with precious-metals businesses needing to sell new product.
"People have stopped buying," says one jewellery store owner in Bengaluru, India – the No.2 gold consumer nation – speaking to the
Financial Times and
blaming the 2024 price jump.
"A person who could afford to buy around 100 or 200 grammes has just shifted to like 50 to 60 grams."
Jewellery buyers have gone on strike in China too, with gold's No.1 consumer market seeing stores empty of shoppers, and for the same reason.
"Selling gold is really difficult now," says a sales assistant speaking to China Observer.
"In the first half of this year, the price of gold had been rising..."
...
denting demand so badly amid China's wider economic slowdown and financial slump that even sudden and massive discounting by big retail names like Chow Tai Fook failed to boost sales during the May Day holidays.
This plunge in China's jewellery demand is already rippling through the industry. "I had always planned to retire in Chow Tai Fook, and
did not expect the factory to be gone suddenly," one worker at CTF's plant in Shenzhen told financial news-site Lanjinger in May after being laid off.
Australian giant the Perth Mint is also cutting jobs thanks to poor demand for gold coins worldwide. Management blame "weakening market conditions" with sales volumes at the lowest in 5 years. But the 50 redundancies offered so far are still less than half the new hires which Perth made
in the 12 months to last June.
Shopping-mall and online coin dealers also came into this slump after enjoying bumper times, most especially in Europe. But the Covid and then inflationary crises of 2020-2022 have now been followed by a jump in bank interest rates for Western households...
...making cash a more attractive asset after years and years of below-inflation returns...
...and gold's record-high prices keep inviting last decade's buyers to take a profit while deterring fresh buyers.
This
high-price recession in retail gold investing has now been wearing on for 18 months. Newer dealers in Germany, the
go-go buyer of coins and small bars when interest rates on Euro bank accounts went below zero even before inflation in 2014 to 2022, risk running out of cash to buy back the metal they sold to those once-eager buyers...
...flooding the industry with unwanted and now secondhand coins, thereby hurting sales of newly minted products still further.
Gold-backed ETFs also shrank yet again in Q2 this year, with growth in Asian-listed products more than offset by heavy selling of European funds.
The giant GLD gold ETF has seen a little inflow so far this month, but only after holding unchanged across Q2. The second-largest such product, the iShares GLD trust fund, has meanwhile shrunk to pre-Covid size.
Add it together, and households in China and India – gold's 2 largest consumer markets – are shunning jewellery...
...gold and silver are meeting
continued (but slower) profit-taking on BullionVault...
...coin and small-bar buyers have gone AWOL in Europe and slashed their demand in North America...
...while ETF shareholders are staying shy...
...and now even the People's Bank of China has paused if not stopped adding to its gold reserves.
So how come gold has held onto the gains it made last year and also the jump it made this spring on top?
Central banks as a group continue to build their reported holdings month after month,
led in June by India, Poland and Czech Republic. As a group, and
according to a survey published by the mining industry's World Gold Council, more than 2/3rds of central bankers say that allocations worldwide will rise across the next 12 months. Official data back that up, with 1-in-3
central banks adding gold across the past decade, swallowing well over 1 year's new mine supply. That doesn't account for unreported demand; analysts Metals Focus reckon it's added 50% as much on top.
The hot money remains hot but not scalding. Speculators in Comex futures and options ended June with the same bullish position on gold as they started last month, net of their bearish bets, close to its largest size since spring 2020's Covid catastrophe. That group's bullish betting in silver derivatives has eased back, but it remains almost 50% larger than its long-term average.
Thailand and Vietnam are
apparently seeing a real gold rush, with savers and investors emptying dealers' shelves amid fears of economic slump. Word is that
family offices and other wealthy investors in the USA are also raising their allocations ahead of November's White House election, slowly and quietly and certainly without any notable upturn in new US users here at BullionVault to date. Either way, we have seen
a surge of new users living in France, outstripping any other change across Western Europe in the run-up to and aftermath of Macron's snap (and stupid) election.
Besides BullionVault client holdings,
total holdings of gold and silver in London vaults –
heart of precious metals global trading and storage – actually rose again in June, ending the first half of 2024 at the highest since January, albeit a little lower from this time last year. That growth came in private-sector holdings, with central-bank gold
custodied at the Bank of England slipping a little from May's 4-month high.
Finally,
it's now summer north of the Equator. So
a dip in gold prices is hardly news.
India always goes quiet this time of year (after next week there aren't any auspicious days for Hindu weddings until October this year). So does China (its peak jewellery demand comes at Lunar New Year in January or February). There's also a lull, typically, in financial trading too (the old chestnut tells stock-market investors to
"Sell in May...").
All told, this often sees the price of gold and silver soften or slip in June or July. And for summer 2024...
- The profit-taking among Western investors is not new. While it's now causing job losses in the precious metals industry, it's failed to derail silver and gold's steep rise in 2023 and 2024 to date;
- The pause in China's central-bank buying contrasts with continued reserves growth more widely;
- The slowdown in Chinese and Indian jewellery demand matches the seasonal pattern, and it contrasts with other Asian markets;
- Political risk, and most especially geopolitical shocks, look likely to support prices by encouraging investment demand as the back-half of 2024 unfolds;
- https://www.bullionvault.com/gold-news/opinion-analysis/gold-2500-2025-f...
- The US Fed, having delayed and delayed, looks set to give speculative traders the boost they've been betting on since Christmas last year, with its first cut to Dollar interest rates nailed on for September according to market forecasts and betting.
Before then, gold and silver might have to get through the summer doldrums of low investment, empty jewellery shops, and beached traders.
Anyone wanting to start or expand their holdings, take note.
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