Gold demand lowest since 2009, is it time to buy?
If you believe the return on gold will revert to its long-term average, the present stagnation could be a buying opportunity
The World Gold Council has released a report stating that demand for gold in the first half of 2018 is the lowest since 2009. Demand in the first half was 1959.9 tonne, down from 2086.5 tonne in the first half of 2017. The biggest dip was in investment demand for the precious metal with ETF demand falling 46%. By contrast, jewellery demand is only down 2%. The central bank purchases fell by 7%. The tough environment may represent a problem as well as an opportunity.
The gold price has been flat in 2018, prolonging a period of relative stagnation. The returns of gold as measured by the largest Indian Gold ETF are as follows:
| Period | Return |
| 1 year | 1.91% |
| 3 years | 5.15% |
| 5 years | 0.53% |
However, if you zoom out and take a longer term view, the returns are quite different.
| Year | Gold Price (INR) | Return |
| 1968 | 162 | – |
| 1968-78 | 685 | 15.5% |
| 1978-88 | 3130 | 16.4% |
| 1988-98 | 4045 | 2.6% |
| 2008 | 12500 | 11.9% |
| 2018 | 31000 | 9.5% |
| 50-year average annual return | 11.2% | |
Source: Bankbazaar.com; Data as on 19th Jan 2018
Hence, if you believe that the return on gold will revert to its long-term average, the present stagnation could be a great buying opportunity. As a famous quote attributed to Warren Buffett goes, “Be fearful when others are greedy, and greedy when others are fearful”.
Staff Writer
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