Investor Demand for Physical Gold Reached a Record High in 2016

2016 has been a good year for precious metals so far. However, the recent rise in gold prices and silver prices hasn’t really captured the full magnitude of what’s going on.

According to data published by the World Gold Council last week, demand for gold increased by 1,064 tonnes during the first half of this year. Total gold demand amounted to 2,235 tonnes in that time-frame, which is the second highest it’s ever been. That’s 16% higher than the previous mid-year record in 2009, which was at the height of the last recession.

However, there is an element to this recent surge in gold demand that is different from previous rallies. According to the World Gold Council:

“For the first time on record, investment has been the largest component of gold demand for two consecutive quarters…this has been in no small part due to demand from Western investors across the spectrum, from retail to institutional and for bars, coins and ETFs.“

So this gold rally is not being fueled by say, jewelry buyers or industry, which is what you would expect in a healthy economy. It’s from investors who don’t have a have a lot of confidence in the future of our economy. And more importantly, we’re seeing demand from institutional investors, as opposed to just individual investors. In other words, the big money is getting involved, and that could have a massive impact on the future price of gold.

Or at the very least, it could keep prices afloat for a very long time. The World Gold Council warned in their report that this current rally could slow down soon, but because of large institutional investors, the slump would be short-lived.

And the WGC cautioned that gold’s eye-watering ascent could be running out of steam after the breakneck first half.

The body noted that “although there is currently no indication that demand will come to a halt, there is evidence of profit-taking and it would be prudent to assume that recent momentum may be difficult to sustain.”

The WGC didn’t warn of an imminent collapse, however. Rather, the gold experts advised that “the positive shift in attitudes among large-scale Western investors in particular, appears to have solid foundations,” adding that “we should see demand build on those during the quarter ahead.”

Of course, that’s just their best near future prediction. The situation could look very different down the road. If for instance, there is another massive global economic crisis like we saw in 2008, or worse, that’s going to change everything for gold. Those “large-scale Western investors” are going put a lot more money in precious metals, and the current gold prices are going to look quaint by comparison.