If you haven’t noticed, no one is buying gold as a safe haven anymore.
The current turmoil in Turkey, Argentina, China, and emerging markets has not moved gold at all.
Investment demand continues to fall. Gold jewelry demand in India will fall at a much faster pace in the future.
I have been following and writing about gold (GLD) for many quarters here and there, and more or less my suspicions pertaining to its trajectory have been confirmed again and again. Before I get into the details, let’s take a look at the latest gold report (dated August 2) from the WGC (World Gold Council).
First of all demand for H1 (January – June) fell 6% to 1,956t, the lowest since 2009. To me, that’s the first eyeopener.
Overall demand for jewelry fell 2% Y/Y in Q2, with India being down a whopping 8% Y/Y. Demand from China increased 5% Y/Y, however demand from Iran fell 35%, UAE demand fell 24%, demand from Saudi Arabia fell 10%, and Turkish demand fell by 10% Y/Y respectively.
Gold bulls like to emphasize that people in many of the above countries buy gold to hedge against currency depreciation. However this time this has not happened.
Yes, the people in the above countries who already had gold did offset the slide of the value of their currency, but for those who don’t have gold, buying it is not easy when your currency depreciates. Turkey in particular comes to mind, since in dollars terms their GDP has fallen by about 50% over the past several months.
Besides, as I have explained in previous articles, the cultural attraction to gold in many countries around the world is becoming irrelevant. Mainly because of the availability of the banking system in many of these markets. People will choose to put their money in the bank, as opposed to buying gold when they can.