According to Eurostat, Great Britain imported 996 tons of gold in 2019. Most investors believe that the global price of gold is mostly shaped by the demand for jewelry and coins, but this is only partly true. The key factor influencing the price is actually institutional demand, alongside supply.
It is important to point out that London has an extremely liquid spot gold market. Here, billions of dollars' worth of gold are traded every day. The increase of gold imports into the UK to 996 tons reflects the price growth last year. Over the course of 2019, the USD price of gold has increased by 18.9% (and by 22% in euro).
We should stress that most of the imports into the UK occurred during the months when the price was growing. For example, net imports equalled 194 tons in July, 227 tons in August and 179 tons in September. By late 2019, the price of gold stabilized and imports dropped: initially to 83 tons in November and finally to just 10 tons in December.
Last years' statistics show that between 2015 and 2019, the UK's net imports of gold had a 66% correlation with the price. This fact shows that London has a serious impact on global gold prices.
Interestingly, Asian investors demonstrate very different behavior. When market players in London purchase gold, the Asian market demand falls. For instance, in July and August 2019, when gold imports into the UK were at their peak, imports into China plummeted.
In January 2020, the price of gold grew by 4.6%, leading to a reduction of its imports into India. Officially, the South Asian country imported only 31 tons of gold.
Another curious fact is that the LBMA has set a new daily trading volume record of $86.4 billion on January 8, 2019. According to LBMA's chief executive Ruth Crowell, it's a significant achievement, since the current average daily volume is only about $49 billion.
The recent spike in gold prices didn't come as a surprise to the market. It's long been clear that central banks in various countries plan to alleviate their debt by printing new money. As such, Federal Reserve Chairman Jerome Powell recently stated that the Fed will keep buying bonds in order to gradually reduce interest rates. This is supposed to prevent a new recession. This plan is sure to please the US government, since it will facilitate a further expansion of its debt burden.
However, there is an objective limit to how much money a central bank can print. This ceiling hasn't been reached yet, but we can reasonably assume that central banks will, in fact, reach this threshold sooner or later.
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