Insights

I was in Shenzhen earlier this month attending various events held by major jewellers and industry bodies such as the Shenzhen Gold and Jewellery Association.

Attracting around 2,300 Chinese jewellers, the Shenzhen International Jewellery Fair 2019 is China’s leading jewellery conference and exhibition, showcasing cutting-edge innovations and exciting developments in China’s jewellery market.

Gold rallied on Friday following the LBMA fix which left the fix price flat on the week and XAU higher (XAU +2%, LBMA -0.1%) as yields fell following the Fed rate cut which left the market thinking the ‘organic growth’ Powell discussed could represent future QE.

• In August, Shanghai Gold Benchmark (PM) rose 11% to 355 yuan/gram and the local gold premium peaked at a six-year high.
• While Au(T+D)’s trading volume in August surged to a new all-time high, gold withdrawals from the Shanghai Gold Exchange (SGE) declined again last month.
• Gold imports dropped to 44t in July, the lowest since 2017.
• The People’s Bank of China (PBoC) added another 6t to its gold reserves in August.

On 17 September, independent asset management firm First Eagle outlined the benefits that it believes gold and gold mining stocks can bring to an investment portfolio. Today, First Eagle discusses gold’s role in detail and assesses the current drivers for performance.

First Eagle Investment Management is an independent firm with more than US$100 billion (bn) of assets under management and a heritage dating to 1864. Committed to prudent stewardship of clients’ assets, First Eagle believes that gold and gold-mining stocks can play a unique role as a potential hedge in investment portfolios. Thomas Kertsos, co-portfolio manager of the First Eagle Gold Fund, explains why in part one of a two-part interview; part two of this interview will be published 18 September.

In our recently published report Gold: the most effective commodity investment, we looked at how gold is under-represented in the commodity indices investors often use to gain exposure. This can have unintended consequences on portfolio performance, especially when other commodities – such as oil – can have significantly different characteristics than gold.

While the gold market is a complex place, full of interesting dynamics and uses, nothing quite gets people's attention like the gold price.

Today, we released a report on gold and commodities, covering key themes including:

• Why gold is not a typical commodity
• Why gold is under-represented in commodity indices (ranging from 3% to 12%) despite its clear differentiating benefits
• Why gold is the most effective commodity investment

When Dr Duvvuri Subbarao was Governor of the Reserve Bank of India, the country’s gold reserves increased by more than 50%. Now a Distinguished Visiting Fellow at the NUS Business School in Singapore, Dr Subbarao explains why he believes gold has such a significant role to play among central banks, particularly those from emerging markets.

Over the past 18 months, central banks have had a voracious appetite for gold. Alongside the impressive AUM growth in gold-backed ETFs, this has been one of the most prominent stories in the gold market. As we noted in the most recent edition of Gold Demand Trends, in H1 2019 central bank demand hit the highest level since becoming net buyers in 2010.

• Indian gold imports reached just 37.7t in July 2019 – 49% lower than the same month last year 
• The domestic gold price was 2.3% higher in July compared to June; 23% higher y-t-d
• The custom duty on gold was unexpectedly raised by 2.5% in the Union Budget on 5th July
• With elevated domestic gold prices and a higher custom duty, the discount in the local gold market reached a peak of US$28/oz in July
• Volatile prices and weak physical demand encouraged healthy gold futures trading on MCX: volumes touched a high of 46.8t in July

In recent years, expansion into tier three and four cities has been a major strategic focus for many Chinese jewellery retailers. Chow Tai Fook (CFT), a leading retailer based in Hong Kong, added 251 points of sales (POS) in lower tier cities in 2018 compared to only 50 in tier one cities. Lao Feng Xiang, another large jeweller with 3,521 POS domestically, also prioritised expansion into lower tier cities.

Gold was higher last week (XAU +1.1%, LBMA +1.2%), as markets were volatile, and the US 2/10 curve turned negative, which has historically often preceded a recession.

• Chinese gold prices rose modestly in July 
• Au(T+D)’s trading volume in July extended its June surge
• The local gold premium saw a much lower volatility 
• Imports registered another decline, dropping to 55t in July
• Gold withdrawals from Shanghai Gold Exchange (SGE) experienced the first rise in four months 
• The People’s Bank of China (PBoC) added another 10t to its gold reserves

Many investors buy gold instinctively, as a long-term store of value. Charlie Morris, Head of Multi-Asset at UK investment manager Atlantic House Fund Management, has devised a more conventional way of assessing gold – using a tried and tested model.