We know the dollar has been losing value over the last few weeks. However on Wednesday the intra-day plunge in the dollar index was slightly more severe than usual, as can be seen in the following chart:
Of course, it did coincide with a much bigger than expected draw in US crude inventories, which saw the crude price spike up thusly:
The effect of which was also noticed in the gold market, and much more than usual. Comex gold futures reacted thusly:
It’s worth pointing out it was already quite a day for the gold bugs. Earlier on Wednesday the World Gold Council revealed demand for gold in the first quarter soared by 38 per cent year-on-year to 1,016 tonnes. From the release (our emphasis):
According to figures published today by World Gold Council (WGC) in its Q1’09 Gold Demand Trends report,identifiable investment demand for gold, which includes exchange traded funds, (ETFs) and bars and coins, was the major source of growth in the quarter, reaching 596 tonnes, up 248% on Q1’08.
The figures, compiled independently for WGC by GFMS Limited, reveal a record level of investment into ETFs with demand soaring 540% to 465 tonnes at a value of US$13.6bn. Net retail investment (total bar and coin demand) remained highly robust, rising 33% year on year to 131 tonnes, despite some bar and coin dishoarding in eastern markets as investors took profits. Germany was the single biggest bar and coin market in Q1’09, where demand rose 400% on Q1’08 to 59 tonnes, with inflation concerns being a key buying motivator. Switzerland was the second largest bar and coin market, up 437% to 39 tonnes on Q1’08, followed by the US, rising 216% to 27.4 tonnes.
Commenting on the figures Aram Shishmanian, CEO of the World Gold Council said:
“There has been a seismic shift away from capital appreciation towards wealth preservation and we believe this trend will define investment behaviour in the next decade. Gold, as one of the few assets that has held its value during the current economic crisis, has been sought out by investors who are drawn to its proven protective attributes as well as safeguarding themselves from the erosive effects of future inflation.
“The shift in the balance of demand that we have witnessed this quarter, where the gold price has risen despite a severe drop in jewellery and industrial demand, perfectly demonstrates the robust nature of gold’s fundamental supply and demand dynamics. While jewellery demand is unlikely to return to more positive territory in current market conditions it remains a key market driver. Affinity for gold jewellery remains and we are confident that demand will grow as consumer confidence and purchasing power returns.” The funny thing is that that fundamental demand spike slightly contradicts the gold-price action over the last quarter:
Related links:
So who says there’s no oil/dollar correlation? - FT Alphaville
Oil, the great inflation hedge – FT Alphaville
A commodity anchor, or oil as money – FT Alphaville
BNY Mellon’s fx team: Ultimately, buy gold - FT Alphaville
The gold-to-oil ratio – FT Alphaville