Chart: Gold prices (USD) with 14-day relative strength index (RSI) and Chicago Board Options Exchange Volatility Index (VIX) as proxy for market volatility
The Gold Report: The price of gold flirted with $1,300 per ounce ($1,300/oz) in January. In July, it fell below $1,100/oz. What happened?
Joe Mazumdar: Gold began 2015 at $1,184/oz. So, year to date it’s down about 8% in U.S. dollars. And one of the primary reasons for that is the strength of the U.S. dollar, underpinned by an economic rebound and the anticipation of an interest rate hike in the latter part of 2015. From January to July 2015, the U.S. dollar as proxied by the trade-weighted index, the U.S. Dollar Index (DXY), was up by the same amount as the U.S. dollar-denominated gold price was down, 8%.
Figure 1: Gold prices (USD) with 14-day relative strength index (RSI) and US Dollar Index (DXY) as proxy for USD performance
Source: Bloomberg
Gold’s sideways to downward trend is underpinned by weak demand fundamentals. Overall Q1/15 demand—1,079.4 tonnes—as provided by the World Gold Council, was in line with the last two-year quarterly average. However, jewelry demand, which represents about 55% of overall demand, was down 6% versus the two-year quarterly average, down 8% quarter-on-quarter and down 3% year-on-year. Investment gold, such as bars and coins, which represents about 23% of overall demand, was down 20% in Q1/15 versus the two-year quarterly average.
Figure 2: Gold demand and supply from Q2/13 to Q1/15
Source: World Gold Council Demand Trends Q1/2015 and Canaccord Genuity estimates
TGR: Are the central banks still buying?
JM: Purchases in the last documented quarter, Q1/15, were about 119 tonnes, so still positive. However, that is down 18% versus the two-year quarterly average. Of note, there was a positive inflow of ~26 tonnes in exchange-traded funds (ETFs) during Q1/15, the first …read more