Your News to Know – August 18, 2014

Each and every week we bring you pertinent news related to gold and the overall economy. This week, the World Gold Council forecasts a positive return to past, high levels of global gold demand, the ratio between the price of oil and the price of gold is at a local peak, and finally, why the Ukraine crisis is emphasizing the role of gold as a safe haven investment. All in this week’s Your News To Know.

Global Demand for Gold Set To Rebalance and Increase

The most recent Gold Demand Trends from the World Gold Council (WGC) predicts the demand for gold to ‘recalibrate’ towards previous long-term trends. Gold demand in 2013 was remarkably strong with significant surges at the end of Q1 and Q2 from China as well as robust demand from India, which saw the implementation of legislative import restrictions. Therefore, it isn’t shocking that WGC figures for 2014 so far indicate a decline on demand over a year ago, with global demand marked at 964 tonnes for Q2, down 16% for the same period of 2013. However, overall demand has been resilient and the WGC predicts a return to older patterns in gold demand as consumers resurged their activity. Marcus Grub, the WGC’s Managing Director of Investment Strategy, believes in a natural balance of the gold market, saying, “In the context of an exceptional year last year where we saw record consumer buying and investor sell-offs, this quarter’s demand continues to demonstrate a return to long-term trends, illustrating the uniquely balanced nature of the gold market. Overall the gold market is stabilizing following the extraordinary conditions we saw in 2013.” With the ebb and flow of the gold market highly contingent upon geo-political phenomenon, it generally seems to recover and balance itself out.

The WGC figures display continued signs of recovery in Western markets as jewelry demand in the U.S. rose by 15% and 21% in the UK. Central bank demand for gold has also experienced a steady and gradual increase, notably with Russia being a major buyer as it prepares to battle the West in an economic confrontation.

Gold to Oil Ratio Experiences an Upsurge

There is an economic correlation between the prices of oil and gold, both being commodities that move in the opposite direction of the U.S. dollar. Due to global concerns, the ratio between gold and “black gold” is currently the highest since March. The ongoing Israeli-Palestinian conflict as well as the deteriorating situation in Ukraine have sent the prices of gold and crude oil upwards, underlining their economic relationship. As of August 13, one ounce of bullion bought about 13.58 barrels of oil, the highest since March 18. This rise in price can be accredited to the global political tensions as well as a U.S. retail sales market report that did not live up to the projected levels. Gold has jumped 9.3 percent this year due to growing violence in the Middle East and Ukraine combined with braking economic growth in the United States. Tom Power, a senior market strategist at RJO Futures in Chicago speculates, “It’s clear that people are comfortable with the global oil-supply situation, despite all the violence in the oil-rich regions, and probably demand will not surge as there are growth concerns. Gold, on the other hand, is advancing because of the global turmoil.”

Global Turmoil Emphasizes Demand for Haven in Gold

As tensions intensify between Ukraine and Russia, with Ukraine balking at attempts by Russia to send in convoys of trucks reportedly carrying humanitarian aid, gold prices have increased with the boosted demand for the metal as a safe haven investment. Challenging bearish predictions by Goldman Sachs Group Inc., gold has rallied 9 percent this year with escalating violence in the Middle East and the tense deadlock in Eastern Europe. Historically, gold has been hedge against inflation as well as against declines in other assets, such as stocks or currencies. Therefore gold is being sought as a safe haven investment amidst political turmoil and speculation to any market crashes. Tim Evans, the chief market strategist at Long Leaf Trading Group in Chicago, commented, “There’s multiple hotspots in the world that could easily spiral out of control to something much greater. You’ll find that investors will normally flock to safe-haven markets, like gold, in case something really does develop much greater than what we’re seeing currently.” With political tensions hanging in the balance in both Eastern Europe and the Middle East, the future is as unpredictable and volatile as ever.