We Bought Back How Much Gold?

Despite the rising trade tensions and escalating geopolitical risk, gold has remained largely range bound in 2018, so far unable to break through and hold above USD  $1360oz, yet strongly supported (for now) above USD $1305oz.

Rather than discuss short term price movements, in this wire we wanted to share an indicator for the gold market based on ABC Bullion data.

Last time we did this (about seven months ago) we looked at gold buying amongst a particular subset of our client base, the Sydney jewellery shops that service the local Chinese and Vietnamese community.

We included a chart that highlighted the fact they had an uncanny knack for aggressively stepping up their buying of precious metals prior to meaningful rallies in the gold price.

This time around, we wanted to share some insight from looking at trade amongst our retail client base. The chart below, which runs from September 2016 to March 2018, measures buybacks (sales of metal by clients to ABC Bullion), as a percentage of total turnover with said client group.

As you can see, back in late 2016 (immediately post Brexit and pre-Trump) buybacks were typically less than 10% of total turnover.

At the time, more and more retail investors were buying gold as a hedge against the rising political uncertainty, and a feared correction in risk assets that never came, with the Trump victory in particular helping the market to new highs.

By the middle of 2017, and especially late last year, the situation had completely changed, with buybacks typically between 35%-40% of total retail client turnover.

Both short and long term precious metal investors were cashing in their gold in order to chase equity markets and cryptocurrencies higher.

It was particularly acute in Q4 when the Bitcoin mania was in full effect.

There are quite a few other indicators that highlight how tepid demand for physical bars and coins is amongst Western investors today. Google searches for “buy gold” are back to where they were toward the start of the secular bull market in the early 2000s, as the second image (courtesy of BullionVault) highlights.

Meanwhile, American Eagles sales for gold were down well over 50% year on year in 2017, with many Mints reporting sales figures for last year that were either at or near their lowest levels since the GFC.

From our perspective, we are actually encouraged by this data, for gold, despite the headwinds, is still up 25% from its end 2015 bear market low.

That is a more than respectable return given it has occurred against a backdrop of a continued bull run in stocks (the last month or so notwithstanding), the emergence of bitcoin, an uptick in global growth, and a tightening Federal Reserve.