Gold demand likely to stay strong in October: WGC

Against the a backdrop of an easy monetary policy adopted by central banks globally, continued geopolitical uncertainty with the looming Brexit deadline and tensions in West Asia, as well as rising turmoil in the US Congress, global demand for gold remained strong through the month of September, according to data from the World Gold Council (WGC).

There are several potential positive catalysts for gold in October. The US House of Representatives has initiated a preliminary inquiry into whether to proceed with a formal impeachment investigation of US President Donald Trump, a move that could negatively impact risky assets and drive China to potentially delay trade solutions until the 2020 Presidential election. In addition, the deadline for a Brexit decision falls at the end of October, and there is still uncertainty as to whether there will be a ‘No Deal Brexit’ or a deadline extension.

Potential headwind

However, on the flip side, continued dollar strength and muted demand for gold in India and China could create headwinds, the report said.

During the month, global monetary policy continued to influence gold prices as many central banks around the world cut rates or expanded quantitative easing measures. The Federal Reserve cut rates by 25 bps in September – a move that was widely expected, but signalled at most only one further cut this year.The US stock market is trading near all-time highs and, historically, October is a month when some of the sharpest historical down-moves in stock performance are seen; the most recent of which was last year when the S&P; 500 fell 7 per cent during the month.

Gold-backed ETFs

Global gold-backed Exchange Traded Funds (ETFs) reached their highest levels in September, adding 75.2 tonnes to a total of 2,808 tonnes during the month, according to WGC. The global demand for gold-backed ETFs continued even as global rates increased. The dollar strengthened, with gold prices remaining at all-time high in every major G10 currency, except the US dollar and Swiss franc.

North American funds led September’s flows, adding 62 tonnes ($3.1 billion), European-listed funds brought in 7.7 tonnes ($586 million), with the UK-based fund holdings continuing to see all-time highs, reaching 21 per cent of global gold-backed ETF assets in September as investors position for an October 31 Brexit deadline.