The Surprising Major Demand Factor That Drives The Gold Price
Steve St. Angelo | Dec 16, 2018 11:51PM ET
Investors will be surprised to know the main factor that drives the gold price. It is not the oil price or market. While the price of oil has been a good indicator for the price of gold over the past 50+ years, it has not indicated much over the shorter term. There is a gold market demand factor that seems to move the gold price more than any other indicator.
Precious metals investors might believe that physical gold investment demand is one of the leading drivers of the gold price. While that may have been true in the past, or after an economic and financial meltdown like we had in 2007-2008, physical gold coin and bar demand does the exact opposite of the gold price.
In looking at the data over the past four years, physical gold investment increased when the price declined and rose when the price fell:
As we can see in the chart above, the green bars show that when the gold price (white line) decreases, the demand for gold coin and bar increases. In Q3-Q4 2015, when the gold price fell to new lows, physical gold investment demand increased to 305 metric tons in Q3 2015 and 300 metric tons in the next quarter. Also, when the gold price fell from a peak of $1,335 in Q3 2016 to $1,222 in the last quarter of 2016, gold coin and bar demand surged to 379 metric tons. We can also see the same trend in Q3 2018 when the gold price declined.
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