There is no sugar coating it. The second quarter of 2013 was a bad one for gold. So bad in fact, that you need to go back nearly 100 years to match its poor performance. Prices dropped 23% during the three month period from April through June. The sharp decline was caused by fear in the market, and a “jump ship” mentality that echoed across investor circles worldwide.
Demand for gold during this time was a different story. Overall demand was down 12% year over year for the second quarter of 2013. However the jewelry segment saw a 37% increase in demand year over year, while physical gold bar and coin demand was up a significant 78%! This means that wise investors caught on to the dropping prices and bought while the metal was essentially on sale. (Side note: prices are still quite low, so you have time to capitalize on this trend as well).
Despite strong numbers from jewelry and physical gold demand, overall demand was still down, and the price was down even more. Why? Market fear, as mentioned previously, and demand for exchange-traded funds fell(stock market gold). Investors in the western world anticipated better economic conditions in the near future, and sold aoff a good portion of their stock gold in Q2 as a result, claiming less of a need for keeping gold as a hedge fund. But, there was panic as well. When people saw the price plummeting, and read articles every morning about “the end of gold,” they sold, and sold fast.
Gold supply also decreased by 6% in the second quarter of this year. Mine production was actually up 4%, but recycled gold supply dropped 21%.
Gold is not out of the woods, even now in the middle of the third quarter. Prices are still hovering around $1,300 an ounce, and the market sentiment is still shaky. However, with demand in certain segments skyrocketing, and with mining production increasing, this window of opportunity may close soon. It will be a good thing for the global economy when the price of gold grows stronger, but for individual investors, that will signal the end of their chance to invest in gold at low prices.
We’ve reported several times about trends in Asia, especially China, which is importing as much gold as possible at a record breaking pace. We believe investors looking to capitalize on the low prices should consider doing so quickly, before this opportunity has passed us by.