Headlining RGN’s 2018 gold issue is the World Gold Council – the leading global authority on all things gold. This year, RGN’s editor Jacob Ambrose Willson interviews the council’s head of research and chief market strategist John Reade, encountering a number of pertinent topics within the contemporary gold environment. Using data from the council’s Gold Demand Trends Q1 2018 report, Reade provides an up-to-date account of the forces shaping current demand, along with an outlook for the rest of the year. Other topics of discussion include new mine supply trends and the impact of cryptocurrencies on gold as an investment opportunity.
Jacob Ambrose Willson: Please provide a quick summary of what the World Gold Council does and your own role at the organisation.
John Reade: The World Gold Council is the market development organisation for the gold industry. Our purpose is to stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market.
The World Gold Council has broad experience and deep knowledge of the factors driving market change. This allows us to operate with insight and act with authority in seeking to resolve industry issues, create pro-gold policies and raise standards across the industry. We concentrate on delivering structural change that has long-term impact and is at scale.
Based in the UK, with operations in India, the Far East and the US, the World Gold Council is an association whose members comprise the world’s leading gold mining companies.
I joined the World Gold Council in February 2017 as head of research and chief market strategist. In my role, I am responsible for producing strategic research and developing insights on the gold market; leading our global dialogue by engaging with leading economists, academics, policy makers, fund managers and investors on gold; and leading our research team.
JAW: The headline trend identified in the FY 2017 Gold Demand Trends report was that global demand for gold fell by 7%. Explain some of the reasons why demand for the precious metal dropped by this amount last year?
JR: The decline in demand in 2017 was largely due to lower investment demand. Partly this was because of tough comparisons to a very strong year previously, but some areas were weak, particularly a sharp drop in US bar and coin demand to a 10-year low. Jewellery demand reported an increase of 4% year on year, but this still left the sector weak by historic standards.
JAW: Has the global gold industry been able to arrest this decline in demand during the first quarter of 2018?
The first quarter of 2018 was also soft, with overall demand down 7% compared to the same quarter of 2017. Overall jewellery demand was in line, with China and the US compensating for a weaker Indian market. Investment demand in the first quarter was down year on year, continuing the trend of late 2018.
JAW: What is the World Gold Council’s overall outlook on the gold industry for the rest of 2018? Discuss any key market trends that have been identified by the World Gold Council.
JR: We are expecting a recovery in the balance of 2018, with firm Chinese demand, improved Indian demand and probably better investment demand – already we have seen stronger inflows into gold-backed exchange-traded funds in April, although we have not yet seen any reports of bar and coin demand recovery in the US.
In India, jewellery demand in Q2 started well, with healthy demand during the April Akshaya Tritiya festival, despite higher local prices compared with last year. Looking ahead, improving macroeconomic indicators suggest a positive outlook for jewellery demand. In China, the industry is optimistic, expecting a recovery in jewellery demand in 2018.
JAW: Demand for gold from emerging markets across Asia has steadily increased over recent years. Does the World Gold Council foresee this trend continuing into the coming years as more Asians move into middle class status?
JR: Yes, very much so. For the foreseeable future we expect greater economic growth rates from emerging economies than developed markets. Increased income and numbers of middle class consumers will increase the relative importance of emerging market gold demand and should lead to higher absolute gold demand levels.
JAW: Looking at the supply side, new gold deposit discoveries have slowed down in recent years. How well equipped is the current global mining industry to meet the world’s demand for gold?
JR: While new mine supply grew in 2017 and may grow again in 2018, the industry has struggled to make sufficient new discoveries. In addition, the gold mining industry reduced capital development expenditure following the 2013 fall in gold, and some previously favourable countries for mine development have become less hospitable. We expect new mine supply to peak in 2018 or soon after and then decline slowly thereafter.
JAW: The World Gold Council’s membership is made up of many world-leading gold mining companies. How closely do you work with these members and why should any major gold miner become a member?
JR: We support our members by stimulating demand in new and existing markets through research, insight and partnerships with leaders in investment, jewellery, industry and academia. We work across the entire supply chain, from sustainable and responsible gold mining through to the consumer marketplace.
All our members have a seat on the board and many are actively involved in our programmes and initiatives. The conflict-free gold standard, for example, which provides assurance that their gold is not contributing to conflict, was a member-led initiative.
Our members share our vision of ensuring a sustainable gold mining industry, based on a deep understanding of gold’s role in society, now and in the future.
JAW: Does the World Gold Council foresee any geopolitical turbulence or market turmoil that would facilitate a rise in gold investment, bearing in mind its status as a ‘safe haven’ commodity?
JR: Gold does have a well-founded reputation as a safe haven during times of economic turmoil and often is boosted by geopolitical turbulence, although the effect of the latter is often short-lived. Forecasting either market turmoil or geopolitical turbulence is very difficult, but we believe that there is likely to be incidents of both over the next few years.
With the US economic recovery now the second longest on record and with unemployment approaching all-time lows, the chances of a recession in the US over the next few years is increasing. Increased global trade tensions, a more truculent stance from many world leaders and ongoing uncertainty about the intension of North Korea have elevated geopolitical risks too.
JAW: Finally, how has the reputation of gold as a safe investment been challenged by the rise of new investment opportunities such as the cryptocurrency market?
JR: There is no doubt that cryptocurrencies and blockchain initiatives hit the headlines last year, but we have seen no evidence that this frenzy affected demand for gold. We’ve looked at volumes on futures and spot exchanges and spoken to bar and coin dealers in the US, where demand was weak last year, and in no case have we seen gold demand hit by the surge and then decline in bitcoin and other crypto assets.