News: Gold enjoys positive start to 2016

Fri, 19 Feb 16

Gold is enjoying a positive start to 2016, with price rises and global concerns fuelling demand.

The precious metal has always been a popular choice among investors seeking a safe haven from the financial markets; the first signs of China’s economic slowdown last year prompted Chinese demand to rise by one-fifth to 201 tonnes in 2015.

That figure remains below the record 407 tonnes set in 2013, but gold has seen a strong rise in demand this year, with investors overtaking jewellery buyers. Bars and other investment products have seen strong interest, Roland Wang, Managing Director of the World Gold Council, told Reuters.

"We have seen quite solid (investment) demand for this past one-and-a-half months. We have to see gold maintain the rally for quite a period of time. That will determine further purchases by investors."

Indeed, price growth is what encourages Chinese buyers to buy the precious metal and, according to the WGC, gold is the best performing asset this year, with prices climbing 14 per cent, a significant turnaround from three consecutive years of falls. In fact, the metal hit a one-year high last week.

However, demand has also been driven recently by the Chinese New Year, when bars are a popular gift to buy, which means that demand could then slow in the coming months, unless prices keep on climbing. Historically, jewellery has driven demand for gold, with investment accounting for one-fifth of Chinese consumption, but demand for jewellery fell 1 per cent in 2015 to 783.5 tonnes, thanks to the previous drops in prices, as well as the country’s slowing economy.

"Jewellery demand may face some headwinds," Wang adds. "We have more confidence in investment demand than jewellery demand."

In the UK, gold has also been the stand-out performer when looking at actual market returns, according to Lloyds Banking Group’s latest investment report. This has been reflected in investor sentiment rising by 8.57 per cent in February 2016. In this year, so far, gold has overtaken UK equities as the second-most favourable asset class behind UK property.

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