Gold was up, up and away in September. But who was doing the buying?
New data we released today here at BullionVault show that private households across Western Europe and the U.S. continue to join the bull market. But their response to QE3 and the latest phase of the Eurozone crisis is more measured—you might even say complacent—than the recent price action alone suggests.
"There has until now been a lack of hard data on self-directed retail investors in gold," said Marcus Grubb of the World Gold Council, which is a shareholder in BullionVault, at today's launch here in London of our new Gold Investor Index.
"For instance, the data we produce [the excellent Gold Demand Trends] is more at the macro level, including institutional and private wealth management. This new Gold Investor Index is a real innovation—a unique and useful addition to the data already available. It's a coincident indicator of what private households are choosing to do with regards to physical gold."
How so? BullionVault's new Gold Investor Index is a monthly data point based on actual trading on BullionVault, the world's largest provider of physical gold ownership to private investors. Since launch in April 2005 it's now been used by more than 42,000 private investors from 159 countries worldwide.
Almost 90% of BullionVault users live in the UK, U.S. or Eurozone. So the Gold Investor Index shows what the largest pool of private gold investors in the developed Western World is doing with its metal—either buying more or selling, or choosing to sit tight. They can all make that decision as they choose using BullionVault's peer-to-peer exchange online, a truly international market in physical bullion which is accessible to people all over the world. You will not find a more reliable guide to the wider retail-investment market in physical gold.
How does BullionVault's Gold Investor Index work? First, it takes the balance of net buyers (who added to their holdings, and so includes new entrants) versus net sellers over the last calendar month. The index then shows that figure as a proportion of all existing gold owners to give a comparable series over time. The index is rebased so that a perfect balance of buyers and sellers would give a reading of 50.0.
In September this year therefore, and as the chart shows, self-directed investors in the West grew more bullish on gold. Rising from August's reading of 52.1 to 52.5, however, the Gold Investor Index still lagged levels seen earlier this year, and it was well below the series-record to date—the level of 71.7 hit in September 2011.
So, September 2012's reading on the Gold Investor Index undoes any talk of a "gold bubble" amongst Western households. Because the private investor response to QE3 and the latest phase of the Eurozone crisis is far more measured than the last time gold prices reached their current level. This may give succor to central bankers and other policymakers hoping to buy time. The index suggests households are less anxious about inflation or a currency crisis than bank analysts and managed wealth advisors.
It's hard to find any gold bears among professional investors right now. Amongst self-directed retail investors too, sentiment towards gold is bullish. But hard transactional data from the world's largest pool says they're not as bullish—in aggregate—as they were earlier in the year. And sentiment towards gold is way below the moments of extreme investor stress seen previously in this financial crisis, such as late-summer 2011.
The new Gold Investor Index confirms what we're hearing from our friends and contacts in the coin and small-bar business. Sales have been lackluster since spring. That may change, however, if the UK's overvalued pound, the Eurozone's unceasing crisis, and the U.S. fiscal cliff crash into each other toward New Year. Either way, the new Gold Investor Index will clearly show how private investors respond.
Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events—and must be verified elsewhere—should you choose to act on it.