Gold Is Falling: Is It Asian Demand or Central Bank Reserves?
Central bank demands
Gold has been falling, and the Markets have been taking a skeptical approach to the precious metal. But major banks such as JPMorgan Chase, Goldman Sachs, and HSBC are remaining optimistic on gold. Read our series What Do Major Banks See Ahead for Gold? for further details on bank views.
One of the primary reasons for JPMorgan’s optimism on gold is the probable rise in gold reserves for central banks around the world. The increased demands from central banks could further lift the precious metal and buoy its related funds. The Global X Silver Miners ETF (SIL) and the Sprott Gold Miners ETF (SGDM) have seen positive returns in 2016 due to the sudden and substantial rise in silver and gold. These two funds have risen 90.3% and 73.1%, respectively, year-to-date.
So far, China and Russia have been the largest holders of gold. Kazakhstan increased its gold reserves last month.
Gold and miners
In the above graph, you can see the comparative performance of gold and its mining-based companies. Fluctuations in gold are depicted by the SPDR Gold Shares (GLD), which closely tracks the changes in gold.
Mining shares have fallen significantly due to the fall in gold and silver in 2016. Some of these mining companies include Agnico Eagle Mines (AEM), Gold Fields (GFI), and Sibanye Gold (SBGL). These three companies have fallen 3.4%, 8.5%, and 11.8%, respectively, on a five-day trailing basis. Together, they make up 11.1% of the VanEck Vectors Gold Miners ETF (GDX).
Next, let’s look at platinum and palladium to see if they’re following gold’s downward path.
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