Gold hits a four-year record high in 2016, says WGC

Inflows into gold-backed Exchange Traded Funds (ETF) drove the global demand for gold to 2 percent in 2016 to reach 4,309 tonnes (t), the highest level since 2013.

The World Gold Council (WGC) said this in its latest Gold Demand Trends report, released on 3rd February. The organisation which has its headquarters in the United Kingdom, is a market development organisation for the gold industry, and is generally considered the ‘‘global authority on gold’’.

“2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold’’ said Alistair Hewitt, Head of Market Intelligence at WGC.

It is speculated that uncertainty caused by Brexit, the United States election, and currency weakness in China helped to boost overall investment demand. Investors were responding to concerns over future monetary policy, geopolitical uncertainty and negative interest rates.

The WGC statement said: ‘‘In spite of resilient consumer demand in the fourth quarter of 2016, the two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21% and 7% respectively. In China, jewellery demand was dampened due to a high gold price throughout much of the year, coupled with constrained levels of supply in Q4, owing to a tightening of currency controls in the country’’.

In June 2016 because of Brexit fears gold rose to a two-year high of $1,370, and in November it surged to $1,337.40 when it became clear Donald Trump was going to win the United States presidential elections. After Donald Trump’s victory the dollar strengthened against the yellow metal.

However, Frank Holmes, a chief executive and chief investment officer at U.S. Global Investors, a firm which specializes in natural resources and emerging markets, said in this article for Investing.com, that the confidence investors had over Trump’s win is eroding, as the price of gold is rising again going by January prices.

‘‘January, in fact, was the best month for the yellow metal since June, when Brexit anxiety and negative government bond yields sent it to as high as $1,370’’, said Holmes.

‘‘Demand for gold as an investment was up a whopping 70 percent year-over-year in 2016, according to the World Gold Council. Gold ETFs had their second-best year on record. But immediately following the November election, outflows from gold ETFs and other products accelerated, eventually shedding some 193 metric tons. But now, just two weeks into Trump’s term as president, the gold bulls are banging the drum, with several large hedge fund managers taking a contrarian bet on the precious metal’’.

Unlike cash, investors generally believe gold is more stable and safer. So whenever there is uncertainty in politics, in the market, the demand for gold increases.