Industry Report Projects Modest Increase in Gold Demand; Production to Remain Flat

Gold demand will increase modestly in 2018 as mine production remains flat, according to an industry report.

Metals Focus released its Gold Focus 2018 report this week. It projects a 1% increase in gold demand this year with stronger physical investment, jewelry and industrial demand partially offset by a drop in central bank buying.

The report anticipates a healthy 4% growth in investment demand, primarily driven by increased buying in Asian markets.

Physical investment is projected to grow by 4% this year. China will account for the largest share of gains, thanks to improving price expectations and a desire for safe-haven assets.”

This dovetails with a World Gold Council forecast that anticipates strong demand for the yellow metal in both China and India as incomes grow in those economies. China’s income growth is expected to come in at around 6.4% in 2018. And India is expected to be one of the fastest-growing countries in the world next year, expanding at an even faster rate than it did between  2012-2014. According to the 2018 World Economic League Table, India will leapfrog France and England in 2018 to become the world’s fifth largest economy in dollar terms. China and India rank first and second in the world in gold consumption.

The primary factor creating headwinds for gold according to the Metals Report is sluggish central bank buying. With the exception of Russia and Turkey, few countries seem interested in stockpiling gold.

Net official sector purchases are forecast to decline slightly. We expect Russia and Turkey to maintain a similar pace of acquisitions to 2017 … excluding these two, net buying is likely to remain relatively low.”

Earlier this year, Russia passed China to become the world’s fifth-largest gold-holding country. Russia has bought gold every month since March 2015 in an effort to diversify its foreign currency holdings and minimize its dependence on the US dollar.

Metals Focus director Nikos Kavalis said a correction in equities could push the price of gold above $1,450 in 2018.

When, rather than if, equities correct, we will still be faced with depressed yields. At this point, investor rotation back into gold, even on a modest scale, should help take it to around $1,450 by year-end.”

Peter Schiff has been saying stocks are already in a bear market. This could push gold up even higher than Kavalis projects when investors realize it. In fact, Peter recently said gold could break out at any minute.

On the supply side, the report anticipates mine production to remain “broadly flat,” coming in at around 3,295 tons. This continues a trend we’ve been seeing over the last several years. Gold supply plateaued last year. Global mine output rose just a paltry 5.7 tons in 2017, according to data compiled by the World Gold Council. That represented the smallest increase since 2008. Mine production in 2016 was also roughly equal to 2015.

Plateauing mine output has led to speculation that we could be nearing or at “peak gold.” This is the point where the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s. During the Denver Gold Forum last September, the World Gold Council chairman said he thinks the world may have already reached that point.

Metals Focus’ offers a relatively conservative view of the gold market and 2018. But even this report indicates now may be a good time to buy gold.

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Photo by Giorgio Monteforti via Flickr.