Business News Agency PRIME has published an article by Maxim Khanin, a leading expert in Alpari Gold about investing in precious metals:
“Following the latest report of the American Commodity Futures Trading Commission (CFTC), after overcoming a three-week high,the hedge funds and large speculators have begun to revise their long positions on gold. COT report of July 15 recorded a decline in net long speculative positions on the stock exchange COMEX on gold futures at 13,947 contracts to 259,129.The reduction was not only due to the fact that some speculators decided to withdraw from the market in order to consolidate gains (long positions declined by only 3,964 contract), but also due to the increase of short positions. According to the report, the total volume of short positions amounted to 36,977 contracts, which is 9983 more than the previous contract period. As forthe silver futures, unlike gold, the situation is reversed.The COT report showed an increase in net long positions in silver futures by 4,882 contracts, to 85,867. Changes have occurred due to a growth of long positions by 2,924 contracts, and by reducing short positions by 1,993 contracts.Weakening Brexit echoes, strong growth in the US stock market (Dow Jones and S&P 500 hit historical records), as well as the increase of yield on 10-year US government bonds last week forced the precious metals to move away from annual highs.Gold retreated to $1,330 per troy ounce, silver fell below $20 an ounce. Nevertheless, in spite of an emerging correction, gold and silver remain the growth potential before the end of the year due to fundamental reasons.Let's look at one of the main ones - supply and demand. India and China, whichare amongthe largest net importers of gold.However, it is from these countries came the alarming news for this precious metal. According to the Indian Ministry of Commerce and Industry,export of physical gold in the country decreased by 42.7% for the first half 2016 compared to the same period of 2015.Chinese retailers of jewelry are also sounding the alarm: sales of gold jewelry are 20% less than in June last year.
What happened?
Precious metals is a commodity. Like any other commodity, they are subject to the laws of supply and demand, so it would be strange to assume that the prices rose, despite a decline in demand.According to the World Gold Council, in the first quarter of 2016 there was indeed a decrease in global demand for gold in the jewelry industry by 19%. The biggest drop in demand for jewelry was observed in India - by 62 tons (41%). In China, demand fell by 17%. On the other hand, demand for gold as an investment tool increased by 122%. A huge influx of precious metal in gold ETF was reported in the amount of 363.7 tons, which exceeded the total outflow of the previous two years. In addition, despite the fact that investing in gold bullions has traditionally been more popular, the demand for this asset decreased by 2%. Investment coinswere in more demand than bullions, and the need for them as investment assets has increased by 17%. With the increasing price of gold, this trend, in which there is a reduction in consumer demand for the precious metal in the form of jewelry from the population, and at the same time, the growing role of this asset as an investment tool, should not be surprising. There is a similar situation for silver.According to the report of the Institute of Silver,the consumption of this metalin industrial production dropped by 22.5 million ounces in 2015. On the other hand, like gold, the demand for this asset as an investment product has increased by 56.2 million ounces, which led to a worldwide increase in demand for silver by 3.4%. According to Alpari Gold,the role of silver as an investment product continued to increase in 2016, compensating for the risks of decline in industrial production.This is evidenced by sales statistics published by the US Mint: the first half of 2016 sales of silver coins American Eagle increased by more than 20.5%, compared with the statistics for the same period of last year. Golden eagles showed more impressive results - sales growth of 83.5% in the first half.”