The factors that affected gold demand in 2018

News Arnulf Hinkel, financial journalist – 13.12.2018

At the beginning of this year, market experts took a satisfied look back at the performance of gold in 2017: despite three Fed interest rate hikes and the ECB having declared victory over deflation – both clear indicators of an end of the expansionary monetary policy – the gold price had developed favourably over the year and, according to an analysis by the World Gold Council, outperformed all asset classes except equities. Due to the US stock markets’ high volatility, analysts expected this trend to continue, although at a significantly lower level. 

After a good start, disillusionment prevailed in mid-year

The first quarter of 2018 turned out to be the weakest since Q1 2008. Nevertheless, the gold price rose by 4 per cent in the first months of 2018, but had relinquished all gains by the end of June. Investor demand for forwards also declined with inflows into ETFs falling by 46 per cent year-on-year. Central bank demand for gold also dropped, albeit by only 7 per cent. At the same time, demand for physical gold and jewellery was virtually static.

Consumer and central bank demand strengthened, followed by a trend reversal in ETFs

The third quarter of 2018 was characterized by two developments: on the one hand, the outflows from ETFs reached their peak, with US investors alone accounting for 73 per cent of overall outflows, responding to the sustained strength of the dollar and the bullish US stock market. On the other hand, central bank purchases rose sharply by 22 per cent, addressing the US/Chinese trade war as well as the still unsolved geopolitical problems within the EU. At the same time, purchases of physical gold went up 28 per cent. In October, the trend in US gold ETFs reversed in response to weakening US stock markets and compensation for the overselling in recent months.

By 11 December 2018, Xetra-Gold holdings had surpassed 181 tonnes, while the price of €35.24, a plus of 24 cents at the time, proved almost identical to its price at the beginning of 2018.

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