World Gold Council Releases Q2 Gold Digest

A modest bout of profit taking in gold, in big part driven by hedge fund liquidations at the end of Q2, has pushed spot price by less than 7% from the all time high, and a variety of bears have crawled out of the woodwork screaming the end of the gold bull market. In the grand scheme of thing this is rather myopic. It was precisely the same quantitative easing the provided the impetus for gold's straight line rise from just over $800 to $1270 in the span of a year as faith in the future of monetary currencies has progressively disappeared, that will serve as the springboard for the next major move higher: and with the Fed now days away from announcing some iteration of its brand new monetization scheme, the days where gold can be purchased cheap may be ending. For those still relatively new to the gold market below is a useful recap of the major developments for the world's best performing asset in Q2 courtesy of the World Gold Council.

Key points:

  • Heightened investor activity supported an upward trend in the gold price throughout the quarter; on several occasions breaking record highs and reaching US$1,261.00/oz on the London PM fix on 28 June, as investors sought out assets offering protection, diversification and liquidity.
  • Investors bought 273.8 net tonnes of gold via exchange traded funds (ETFs) in Q2 2010. This represents the second largest quarterly inflow on record and brought the total amount of gold held in the ETFs that the WGC monitors to over 2,000 tonnes (worth US$81.6 billion). In particular, SPDR Gold Shares (GLD) surpassed the US$50 billion milestone.
  • In the early part of the second quarter, many currencies around the globe not only fell against the US dollar but also experienced higher levels of volatility as credit woes in Europe had a negative impact on the outlook for the euro and the British pound. While the dollar appeared to fare better, investors sought out gold as a currency alternative as evidenced by large purchases of coins and small bars around the globe.
  • Many assets, including global equities and commodities, experienced a period of pronounced volatility, in some instances surpassing levels seen during the first quarter of 2009. Gold price volatility, however, remained much lower than many of these assets during the period, meaning gold outperformed versus S&P 500 Total Return Index, the MSCI World ex US Index and S&P Goldman Sachs Commodities Index (S&P GSCI) on a risk-adjusted basis.
  • In Q2 2010, the diversity of gold’s demand base, less driven by industrial uses as many other commodities, meant that gold was one of the best performing commodities. Oil fell by 9.1% and, similarly, metals with a greater degree of exposure to industrial cycles fell substantially: zinc, nickel and lead dropping by more than 20.0% quarter-on-quarter. Even platinum and palladium posted quarterly losses on the order of 6.7% and 7.9%, respectively.

Full report: