BLOG: Has the gold market changed for good?

Written by:
Gold has had a topsy-turvy year but it could be a sign of things to come, writes Adrian Ash.

Gold hit the headlines again in 2013 thanks to dropping 20% in price. But after rising for 12 years straight, it’s also had a topsy-turvy year compared to its typical month-on-month shape. Indeed, gold has done exactly the opposite of what it usually does.

Crashing in spring, and rising sharply in summer, the gold price has reversed what seasoned traders call the “seasonal pattern”. It’s even slipped as autumn wears on, something seen only 17 times in the past 45 years.

Compared to gold’s average monthly moves since 1968, in fact, gold in 2013 has so far done the opposite 7 months out of ten. Across two of the others – July and August – gold turned its usually flat performance into a 19% rise.

Only in March did gold really stick to the script. And even then it turned the average post-1968 slip of 0.2% into a nasty 2.0% fall.

What creates gold’s more typical pattern? Analysts and traders link it to Asian demand patterns, strong in spring, quiet in summer, and then surging in autumn as India’s Diwali draws near. The Chinese New Year also now brings heavy stockpiling in midwinter. Western financial markets, meantime, tend to ‘Sell in May’ and come back in autumn. Again, gold most often follows that shape.

This year’s big change? India’s new anti-gold import rules. They’ve really played havoc with the metal’s typical seasonal flow. The world’s heaviest buyers, Indian savers are now cut off from the world market (legally at least) by a series of 2013 moves. These rules aim to cut India’s big trade deficit, boosting the Rupee from all-time record lows on the currency market.

Legal imports have sunk to zero. As a result, this month’s Diwali festival gold sales halved from 2012. Because where is new gold going to come from? India has no domestic mine production. Attempts to “mobilize” its huge existing stockpiles (perhaps one ounce in every 10 ever mined in history) have so far come to nothing, with India’s gold-rich temples refusing to melt down their fine-art holdings. Inward shipments continue, however. Only now, they’re strapped to the legs and stomach of brave air travellers, or landed in the dead of night from Dubai. Because with 10% import duty, plus ongoing weakness in the Rupee, the potential returns to smugglers helping meet India’s appetite for hard-money savings are too great to ignore.

Still, the legal ban on Indian gold imports now puts China top of gold’s demand chart. It already tops the world’s gold-mining output. This year’s price-drop unleashed record high demand from private investors and savers, with ever-more of the galloping growth in Chinese savings choosing to buy it. One expert estimate also says the People’s Bank likely bought 300 tonnes of the stuff in the first six months of this year. So while Western money-managers turned against gold, Beijing’s communists scooped up half of the outflows from investment funds here.

Back on the gold charts, however, it’s crucial to note that so far this surge in Asian demand has not translated into stronger prices. Western investment sentiment still leads, and the last time gold performed anything like this badly was in 1982. From the start of that year, gold prices fell 25% by end June. This year gold sank 30% down by midsummer. 1982 then bucked gold’s deeper trend of three decades ago, ending the year 8% up overall versus the Dollar amid what proved a long, drawn out bear market in prices.

Chinese households, however, couldn’t buy gold back in the early ’80s. Deregulation didn’t really get started until 2002. China’s annual gold demand has since risen five-fold by weight, but there could be much more to come as millions more households earn enough money to start saving some for the first time in history. Gold’s topsy-turvy 2013 might just mark how the world’s gold market is changing for good.

Adrian Ash is head of research at

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get?

News and updates on everything to do with coronavirus and your personal finances.

Everything you need to know about being furloughed

If you’ve been ‘furloughed’ by your company, here’s what it means…

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

  • @YourMoneyUK All you need to know about the latest Current Account Switching winners and losers - hats off to Starl…
  • RT @WeareJust_PR: Many people struggling to make ends meet may not realise they are entitled to financial help or find the system too confu…
  • RT @WeareJust_PR: Many people struggling to make ends meet may not realise they are entitled to financial help or find the system too confu…

Read previous post:
Warning over rogue advisers preying on ‘oblivious consumers’

Consumers remain easy targets for unregulated 'advisers' who sell them risky products while collecting commission, an independent financial adviser has...