Gold Mining Stock Outlook - Sept. 2017

Gold has exhibited a bullish run in the markets so far this year. The yellow metal’s safe haven appeal was evident from its gain of 14%, riding on the back of a weaker dollar, terrorist attacks in the U.K. and escalating tensions between the United States and North Korea. In fact, the precious metal broke the threshold limit of $1,300 an ounce this year.

Further, uncertainty over the economic agenda of President Trump and mounting speculation on whether the Fed will deliver a third rate hike this year has fueled the price rise. Concerns over the aftermath of Hurricanes Harvey and Irma led to some safe haven buying as well.

Demand Dips in the First Half, India Holds Ground

Per the data available from the World Gold Council, global gold demand in the first half of 2017 was at 2,003.8 tons, a 14% decline year over year. The decline can primarily be attributed to the slowing down of ETFs from the record levels last year.

Jewelry demand grew 5% year over year to 967.4 tons, remaining persistently below the 1,000 ton mark. India was the main driver of demand as the market stockpiled gold ahead of the implementation of GST (Goods and Service Tax). Sales also escalated with festival and weddings related buying and improved rural sentiment. Meanwhile, demand in China in the first half was 4% below prior-year levels reflecting customer shift from pure 24k gold to lower-carat gold jewelry, which remained the dominant trend.

Technology demand registered its third consecutive quarter of growth in the second quarter. Gold used in technology rose 2% year over year, driven by growth in demand for bonding wire, Printed Circuit Boards (PCBs) and LEDs, particularly in the automotive sector.

Investment in gold bars and coins improved 11% year over year, from exceptionally weak demand last year. China and India were primary catalysts.

Central banks purchased 94.5 tons in the second quarter, 20% rise year over year. This brought the total in first half to 176.7 tons, down 3% year over year. One major development in the second quarter was Turkey buying 21 tons — its first significant addition to reserves since the 1980s.

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