Why gold demand has peaked once more in 2016

Regarding gold, the first quarter 2016 provides for the second strongest quarter in history: demand for the precious metal rose by 21 per cent year-on-year to an impressive 1,290 tonnes. Demand drivers have been investors and central banks, thus answering the question which comes up every now and then whether gold really deserves a permanent position in a balanced investment portfolio with a resounding Yes. The biggest share of the demand for gold, 364 tonnes, went into ETFs. Of course this significant rise in demand had an impact on the price: gold prices rose worldwide, often even in double digits. In the first quarter of 2016, this development led to a situation where gold exceeded its elementary task of portfolio hedging, especially in times of crisis: it also contributed to the very portfolio performance. As Stefan Eberhardt of Eberhardt & CIE. Vermögensberatung elaborated in an article for Telebörse, a renowned German financial news provider, the classic opportunity costs incurred when investing in physical gold or gold-based securities have transformed  into "opportunity revenues": in the area of safe assets, the lack of interest which is typical for gold products - when compared to AAA-rated government bonds - is now no longer a downside of gold investments, but even offers profit opportunities for companies and institutional investors in times of negative interest rates. Given the prevailing uncertain market expectations, which will most likely not be stabilized in the short run, especially in regard of the forthcoming elections in Spain, a potential "Brexit" and the US elections in autumn 2016, gold will hardly lose its attraction as a safe haven. In his interesting article "Gold should be in every investor's depot" (only available in German) Stefan Eberhardt mentions more good reasons to opt for the precious metal, such as the function of gold as an ultimate medium of exchange, or its relative scarcity.

Arnulf Hinkel
Financial journalist