QNB Economics                                                                                    economics@qnb.com.qa     ...
QNB Economics                                                      economics@qnb.com.qa                                   ...
QNB Economics                                                      economics@qnb.com.qa                                   ...
QNB Economics                                                      economics@qnb.com.qa                                   ...
QNB Economics                                                      economics@qnb.com.qa                                   ...
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Qnb group has gold lost its appeal

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Qnb group has gold lost its appeal

  1. 1. QNB Economics economics@qnb.com.qa 16 February 2013Has gold lost its appeal?Gold prices have been one of the strongest expectations for looser monetary policies fromperforming investments this decade, rising from central banks, particularly quantitative easing. InUS$282 per ounce at the beginning of 2000 to turn, this would be expected to lead to highertheir current level of US$1,648 per ounce. This prices, attracting investors to gold.equates to total annual returns of around 14%compared with around 2% for the S&P 500 and Additionally, the heightened risk and volatility inaround 7% for 10-year US Treasury bonds. financial markets and concerns about the depreciation of currencies, particularly the Euro,Gold prices spiked to an all-time high closing also increased the appeal of gold as a moreprice of US$1,895 per ounce on 6th September reliable store of absolute long-term value.2011. Investors were attracted to gold as arelative safe haven amidst dual sovereign crises Furthermore, demand for gold rose 7% in Q3in the US and Europe. These crises began to 2011 versus Q2 alone, providing strong supportemerge in 2010 when gold prices rose 28% from to prices. The largest component of globalUS$1,101 at the beginning of the year to demand for gold is for jewellery manufacturing,US$1,406 by year-end. accounting for around 40%. However, most of the Q3 2011 increase in demand came from private Gold Prices sector purchases of bars and coins, reflecting (US$/ounce, daily closing prices) gold’s appeal at the time as a store of value 1,900 rather than demand for making jewellery or industrial use. Purchases of gold by central 1,800 banks also rose significantly in Q3 2011 as gold became more attractive to this sector versus Euro 1,700 and US Dollar denominated assets. 1,600 Finally, the spike was also partially driven by a 1,500 speculative bubble with prices overextending themselves before the bubble burst. Gold prices 1,400 collapsed 16% from their highs of US$1,895 to 1,300 US$1,598 in just under three weeks. o 1 N -1 o 2 N -1 a 1 M -1 a 2 M -1 a 1 M -1 a 2 M -1 e 1 S -1 e 2 S -1 a 1 J -1 a 2 J -1 a 3 J -1 u 1 J -1 u 2 J -1 Since Q3 2011, gold prices have remained bound n n n l l p p v v in a range from US$1,530 to US$1,800 and are y y r r currently close to the middle of this range at Source: Global Insight and QNB analysis US$1,648.There are differing explanations as to what Many of the market risks that led to the spike incaused the large increase in gold prices. Firstly, prices in September 2011 are now largely thoughtthe crises increased the appeal of traditional safe to have dissipated. Real interest rates are startinghaven assets, such as gold and US Treasuries. to edge up and the economic growth outlook hasDemand for US Treasuries has driven up their improved, lowering expectations for quantitativeprices, driving down yields to the extent that real easing. The balance sheet of the ECB hasreturns have turned negative. This increased the declined from €3.1trn in mid 2012 to €2.8trnsafe haven appeal of gold relative to US currently although the Federal Reserve hasTreasuries. continued to expand its balance sheet, leaving purchases of Treasury and mortgage-backedFurthermore, gold is often perceived as a hedge securities unchanged at US$85bn per month atagainst inflation as its value tends to increase its last monetary policy meeting.with the general price level. The risk to economicgrowth posed by the crises may have led to 1
  2. 2. QNB Economics economics@qnb.com.qa 16 February 2013Total demand for gold has fallen by 2% to 1,188tonnes in Q3 2012 from Q3 2011. In thistimeframe, demand for gold, mainly forinvestment purposes, from the financial sector,excluding central banks, has picked up sharplywhile demand for gold as a store of value hasfallen around 30% (we assume that demand fromcentral banks and purchases of gold bar andcoins represent demand for gold as a store ofvalue). Meanwhile, demand for gold for use inindustry and jewellery manufacturing hasremained flat.Another factor keeping a lid on gold prices, asexpressed in US dollars, is a slight appreciationof the dollar since Q3 2011. All other things beingequal, the gold price tends to fall to compensatefor an increase in the value of the US dollar.Since peaking in early September 2011 atUS$1,895, gold’s performance has beenunimpressive, suggesting that gold may have lostsome of its appeal. According to QNB Group, themain downside risks to the price include centralbanks tightening up monetary policy by cuttingback on quantitative easing and raising interestrates. ** Ends ** 2
  3. 3. QNB Economics economics@qnb.com.qa 16 February 2013Total demand for gold has fallen by 2% to 1,188tonnes in Q3 2012 from Q3 2011. In thistimeframe, demand for gold, mainly forinvestment purposes, from the financial sector,excluding central banks, has picked up sharplywhile demand for gold as a store of value hasfallen around 30% (we assume that demand fromcentral banks and purchases of gold bar andcoins represent demand for gold as a store ofvalue). Meanwhile, demand for gold for use inindustry and jewellery manufacturing hasremained flat.Another factor keeping a lid on gold prices, asexpressed in US dollars, is a slight appreciationof the dollar since Q3 2011. All other things beingequal, the gold price tends to fall to compensatefor an increase in the value of the US dollar.Since peaking in early September 2011 atUS$1,895, gold’s performance has beenunimpressive, suggesting that gold may have lostsome of its appeal. According to QNB Group, themain downside risks to the price include centralbanks tightening up monetary policy by cuttingback on quantitative easing and raising interestrates. ** Ends ** 2
  4. 4. QNB Economics economics@qnb.com.qa 16 February 2013Total demand for gold has fallen by 2% to 1,188tonnes in Q3 2012 from Q3 2011. In thistimeframe, demand for gold, mainly forinvestment purposes, from the financial sector,excluding central banks, has picked up sharplywhile demand for gold as a store of value hasfallen around 30% (we assume that demand fromcentral banks and purchases of gold bar andcoins represent demand for gold as a store ofvalue). Meanwhile, demand for gold for use inindustry and jewellery manufacturing hasremained flat.Another factor keeping a lid on gold prices, asexpressed in US dollars, is a slight appreciationof the dollar since Q3 2011. All other things beingequal, the gold price tends to fall to compensatefor an increase in the value of the US dollar.Since peaking in early September 2011 atUS$1,895, gold’s performance has beenunimpressive, suggesting that gold may have lostsome of its appeal. According to QNB Group, themain downside risks to the price include centralbanks tightening up monetary policy by cuttingback on quantitative easing and raising interestrates. ** Ends ** 2
  5. 5. QNB Economics economics@qnb.com.qa 16 February 2013Total demand for gold has fallen by 2% to 1,188tonnes in Q3 2012 from Q3 2011. In thistimeframe, demand for gold, mainly forinvestment purposes, from the financial sector,excluding central banks, has picked up sharplywhile demand for gold as a store of value hasfallen around 30% (we assume that demand fromcentral banks and purchases of gold bar andcoins represent demand for gold as a store ofvalue). Meanwhile, demand for gold for use inindustry and jewellery manufacturing hasremained flat.Another factor keeping a lid on gold prices, asexpressed in US dollars, is a slight appreciationof the dollar since Q3 2011. All other things beingequal, the gold price tends to fall to compensatefor an increase in the value of the US dollar.Since peaking in early September 2011 atUS$1,895, gold’s performance has beenunimpressive, suggesting that gold may have lostsome of its appeal. According to QNB Group, themain downside risks to the price include centralbanks tightening up monetary policy by cuttingback on quantitative easing and raising interestrates. ** Ends ** 2

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