Gold Demand: Are We Poised For A Major Move?

Although the supply of gold tends to be stable on a long-term period, there’s no doubt that the demand for gold can look like a roller coaster. True, gold bugs will always love gold, that’s why they’re called gold bugs, after all, and gold has a certain level of consistent demand thanks to its role across the world.

But demand in 2016 appears to be heading upward, even as prices go up. What does that mean for the future of the gold price, and how can we confirm that demand is, indeed, on the rise? If you want to understand all there is to know about today’s supply and demand for gold, there are some very important pieces of the puzzle to consider.

Big And Central Banks Can’t Hide What They’re Doing With Gold

One of the best places to look for hints of increased demand? Central banks. Not only do central banks have the capital to make major moves in gold supply, but their own policies hint at where they believe gold may be headed in the long-term future.

And what can we say about the behavior of central banks in recent months, and even years? The outlook is very bullish for gold.

JP Morgan, for starters, believes that gold is headed for a long-term bull market, with JP Morgan’s Solita Marcelli saying, “We're recommending our clients to position for a new and very long bull market for gold.”

As for the central banks, this graph over at SchiffGold has seen a steady and marked increase of central bank official gold holdings since the beginning of the Great Recession. 2015, in particular, saw a major leap forward that suggests the banks could see major moves happening in gold in the future.

This may be due to the central banks' understanding that negative interest rates may be coming. With negative interest rates looming, investors are wise to move their wealth to efficient gold, after all, the cost of keeping gold safely stored while gold prices are poised to go up can often be favorable to spending money to keep your accounts tied up in banks.

The Second Largest Quarter On Record

One of the most remarkable developments in demand for gold this year: the fact that even as prices go up, the demand for gold is outpacing it.

Check out the Gold Demand Trends for the first quarter of 2016. The summary: “Gold demand reached 1,290 tonnes Q1 2016, a 21% increase year-on-year, making it the second largest quarter on record. This increase was driven by huge inflows into exchange-traded funds (ETFs) – 364t – fueled by concerns around the shifting global economic and financial landscape.”

When you consider that the price of gold increased some 17% or so in the same period, the 21% increase in demand showed that the bullish prospects for gold remain strong. And if investors are looking to lock in the current price of gold right now, before it goes over $1,300 an ounce, it’s possible that the second quarter of 2016 could be even bigger for gold demand.