Trading gold – World Gold Council reports record demand for the precious metal.

As bond yields tumble around the world, there is one asset class that seems to be enjoying bumper demand: gold.


That’s according to the latest data from the World Gold Council, which says investment demand for the precious metal has hit a record high and now accounts for more of the total gold pie than ever before.

Investment demand in the first six months of the year was 1,063.9 tonnes, a full 16% higher than the previous H1 record set in 2009. Investment was the largest component of overall gold demand in both quarters as ETFs enjoyed a “stellar” first half of the year.

Overall, demand for gold hit 2,335 tonnes in H1. Physical demand fell sharply in India and China, the biggest buyers of the metal.

Alistair Hewitt, head of market intelligence at the World Gold Council, said that investment demand is being “driven by the West as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty”.

Investors are reacting to a massive rally in bonds that has sent yields plunging. The amount of negative-yielding government paper continues to grow, with the total now in excess of $11.7 trillion.

“Widespread adoption of unconventional monetary policies, including large-scale bond-buying programs and negative deposit rates, have driven the large increases in negative-yielding debt seen this year,” Fitch remarked in a note.

The European Central Bank has ramped up its bond purchasing programme this year and is now buying corporate debt. 

UK gilts have also edged into negative territory after the Bank of England ramped up its asset purchase programme. The Bank cut rates by 25 basis points and launched a £60bn government bond-buying programme, in addition to a £10bn corporate debt scheme.

And with bonds now trading at zero or negative yield there is increasingly similarity between them and gold. JPMorgan says bonds are the new commodities – exchanged for what someone else is willing to pay for them in the future, rather than fundamentals like yields.

Gold yields nothing so is usually sold off when rates are on the up. Despite some talk about the Federal Reserve raising rates this year, the gold rally continues – investment demand is supporting a recovery in prices. Gold is now trading around $1,350 an ounce, a level not seen in three years.

Demand for gold mirrors the bond rally in that investors seem to expect rates to be low for a lot longer and are willing to absorb a negative yield in the hope that they can offload a higher price (and even more negative yield) at some point in the future.

Gold may yield nothing, but it’s a lot more attractive than a negative yield.