The two biggest drivers of gold demand are jewelry and investment. The straw that stirs the drink for gold prices is investment demand.
Over the last five-years, gold investment demand has been down an average of 34.1 tons per year, as shown below in the World Gold Council’s Gold Demand Trends.
But in the first quarter of this year, compared to the first quarter of last year, investment demand was up by 617.6 tons—an increase of 122%.
Investment demand consists of two pieces: Total bar and coin, and ETFs and similar products. Total bar and coin demand growth was flat in the last year-over-year comparison. But ETFs and similar products skyrocketed from 25.6 tons last year to 363.7 tons this year. Meanwhile total gold supply was up about 5%, which is in line with its five year average growth rate.
Therefore, I have two takeaways for you.
First, I don’t believe the average investor has caught the gold bug yet. The money moving around in the ETFs is with a group (hint: begins with hedge), I believe, that can’t afford to sit around and wait out big time volatility. So don’t expect them to hang in if there are any signs of trouble in gold prices. Volatility may be the name of the game.
Second, if the average guy on the street starts talking about gold, it’s too late, you’ve missed the boat. As of now I don’t hear a peep. But remember, following the yellow brick road is never an easy endeavor.