1. QNB Economics
economics@qnb.com.qa
16 February 2013
Has gold lost its appeal?
Gold prices have been one of the strongest expectations for looser monetary policies from
performing investments this decade, rising from central banks, particularly quantitative easing. In
US$282 per ounce at the beginning of 2000 to turn, this would be expected to lead to higher
their current level of US$1,648 per ounce. This prices, attracting investors to gold.
equates to total annual returns of around 14%
compared with around 2% for the S&P 500 and Additionally, the heightened risk and volatility in
around 7% for 10-year US Treasury bonds. financial markets and concerns about the
depreciation of currencies, particularly the Euro,
Gold prices spiked to an all-time high closing also increased the appeal of gold as a more
price of US$1,895 per ounce on 6th September reliable store of absolute long-term value.
2011. Investors were attracted to gold as a
relative safe haven amidst dual sovereign crises Furthermore, demand for gold rose 7% in Q3
in the US and Europe. These crises began to 2011 versus Q2 alone, providing strong support
emerge in 2010 when gold prices rose 28% from to prices. The largest component of global
US$1,101 at the beginning of the year to demand for gold is for jewellery manufacturing,
US$1,406 by year-end. accounting for around 40%. However, most of the
Q3 2011 increase in demand came from private
Gold Prices sector purchases of bars and coins, reflecting
(US$/ounce, daily closing prices) gold’s appeal at the time as a store of value
1,900
rather than demand for making jewellery or
industrial use. Purchases of gold by central
1,800 banks also rose significantly in Q3 2011 as gold
became more attractive to this sector versus Euro
1,700 and US Dollar denominated assets.
1,600
Finally, the spike was also partially driven by a
1,500 speculative bubble with prices overextending
themselves before the bubble burst. Gold prices
1,400 collapsed 16% from their highs of US$1,895 to
1,300
US$1,598 in just under three weeks.
o 1
N -1
o 2
N -1
a 1
M -1
a 2
M -1
a 1
M -1
a 2
M -1
e 1
S -1
e 2
S -1
a 1
J -1
a 2
J -1
a 3
J -1
u 1
J -1
u 2
J -1
Since Q3 2011, gold prices have remained bound
n
n
n
l
l
p
p
v
v
in a range from US$1,530 to US$1,800 and are
y
y
r
r
currently close to the middle of this range at
Source: Global Insight and QNB analysis
US$1,648.
There are differing explanations as to what Many of the market risks that led to the spike in
caused the large increase in gold prices. Firstly, prices in September 2011 are now largely thought
the crises increased the appeal of traditional safe to have dissipated. Real interest rates are starting
haven assets, such as gold and US Treasuries. to edge up and the economic growth outlook has
Demand for US Treasuries has driven up their improved, lowering expectations for quantitative
prices, driving down yields to the extent that real easing. The balance sheet of the ECB has
returns have turned negative. This increased the declined from €3.1trn in mid 2012 to €2.8trn
safe haven appeal of gold relative to US currently although the Federal Reserve has
Treasuries. continued to expand its balance sheet, leaving
purchases of Treasury and mortgage-backed
Furthermore, gold is often perceived as a hedge securities unchanged at US$85bn per month at
against inflation as its value tends to increase its last monetary policy meeting.
with the general price level. The risk to economic
growth posed by the crises may have led to
1

2. QNB Economics
economics@qnb.com.qa
16 February 2013
Total demand for gold has fallen by 2% to 1,188
tonnes in Q3 2012 from Q3 2011. In this
timeframe, demand for gold, mainly for
investment purposes, from the financial sector,
excluding central banks, has picked up sharply
while demand for gold as a store of value has
fallen around 30% (we assume that demand from
central banks and purchases of gold bar and
coins represent demand for gold as a store of
value). Meanwhile, demand for gold for use in
industry and jewellery manufacturing has
remained flat.
Another factor keeping a lid on gold prices, as
expressed in US dollars, is a slight appreciation
of the dollar since Q3 2011. All other things being
equal, the gold price tends to fall to compensate
for an increase in the value of the US dollar.
Since peaking in early September 2011 at
US$1,895, gold’s performance has been
unimpressive, suggesting that gold may have lost
some of its appeal. According to QNB Group, the
main downside risks to the price include central
banks tightening up monetary policy by cutting
back on quantitative easing and raising interest
rates.
** Ends **
2

3. QNB Economics
economics@qnb.com.qa
16 February 2013
Total demand for gold has fallen by 2% to 1,188
tonnes in Q3 2012 from Q3 2011. In this
timeframe, demand for gold, mainly for
investment purposes, from the financial sector,
excluding central banks, has picked up sharply
while demand for gold as a store of value has
fallen around 30% (we assume that demand from
central banks and purchases of gold bar and
coins represent demand for gold as a store of
value). Meanwhile, demand for gold for use in
industry and jewellery manufacturing has
remained flat.
Another factor keeping a lid on gold prices, as
expressed in US dollars, is a slight appreciation
of the dollar since Q3 2011. All other things being
equal, the gold price tends to fall to compensate
for an increase in the value of the US dollar.
Since peaking in early September 2011 at
US$1,895, gold’s performance has been
unimpressive, suggesting that gold may have lost
some of its appeal. According to QNB Group, the
main downside risks to the price include central
banks tightening up monetary policy by cutting
back on quantitative easing and raising interest
rates.
** Ends **
2

4. QNB Economics
economics@qnb.com.qa
16 February 2013
Total demand for gold has fallen by 2% to 1,188
tonnes in Q3 2012 from Q3 2011. In this
timeframe, demand for gold, mainly for
investment purposes, from the financial sector,
excluding central banks, has picked up sharply
while demand for gold as a store of value has
fallen around 30% (we assume that demand from
central banks and purchases of gold bar and
coins represent demand for gold as a store of
value). Meanwhile, demand for gold for use in
industry and jewellery manufacturing has
remained flat.
Another factor keeping a lid on gold prices, as
expressed in US dollars, is a slight appreciation
of the dollar since Q3 2011. All other things being
equal, the gold price tends to fall to compensate
for an increase in the value of the US dollar.
Since peaking in early September 2011 at
US$1,895, gold’s performance has been
unimpressive, suggesting that gold may have lost
some of its appeal. According to QNB Group, the
main downside risks to the price include central
banks tightening up monetary policy by cutting
back on quantitative easing and raising interest
rates.
** Ends **
2

5. QNB Economics
economics@qnb.com.qa
16 February 2013
Total demand for gold has fallen by 2% to 1,188
tonnes in Q3 2012 from Q3 2011. In this
timeframe, demand for gold, mainly for
investment purposes, from the financial sector,
excluding central banks, has picked up sharply
while demand for gold as a store of value has
fallen around 30% (we assume that demand from
central banks and purchases of gold bar and
coins represent demand for gold as a store of
value). Meanwhile, demand for gold for use in
industry and jewellery manufacturing has
remained flat.
Another factor keeping a lid on gold prices, as
expressed in US dollars, is a slight appreciation
of the dollar since Q3 2011. All other things being
equal, the gold price tends to fall to compensate
for an increase in the value of the US dollar.
Since peaking in early September 2011 at
US$1,895, gold’s performance has been
unimpressive, suggesting that gold may have lost
some of its appeal. According to QNB Group, the
main downside risks to the price include central
banks tightening up monetary policy by cutting
back on quantitative easing and raising interest
rates.
** Ends **
2