Emerging markets are driving the global gold market

Emerging economies have become the linchpin of the gold market: Emerging market demand for gold has been driving up the price of the precious metal despite a strong USD, high US interest rates, and weak demand from Europe, World Gold Council’s senior market strategist for Europe and Asia, John Reade, said at the first edition of the World Gold Council conference in Egypt last week. “Gold is very much an emerging market story,” he said.

As good as gold: Gold prices rose to an all-time high of over USD 2.4k an ounce this month, continuing an upward trend that saw the commodity reaching consecutive record highs. Gold has so far outperformed every asset class this year, topping US stocks — to which it came in second last year — said Reade.

The players: India and China account for more than 50% of the world’s gold demand, but other emerging areas like the Middle East and Southeast Asia also play a pivotal role, Reade said, name-checking Egypt and Turkey as sources of demand for gold as an investment.

EM central banks have been a main driver of demand: “The biggest change that’s taken place in the gold market in the last few years has been the action of the world’s central banks,” Reade said. Around the time of the global financial crisis, “emerging market countries who had added tns of USD to their foreign exchange reserves started to buy gold,” while a two-decade trend of selling by Western banks came to a halt, he explained.

By the numbers: EM central banks in 2022 and again in 2023 bought almost double the 500 tons of gold a year that they averaged between 2010 and 2021, he said.

Why are Western investors giving gold a break? In North America, the strong performance of the US equity market coupled with high interest rates mean that the opportunity cost of holding gold is high, Reade said. In Europe, meanwhile, high interest rates are compounded by inflation, which has been eroding disposable incomes and limiting gold purchases, he explained.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.3% last Thursday on turnover of SAR 10.2 bn. The index is up 4.5% YTD.

In the green: Red Sea (+10%), Atheeb Telecom (+6.6%) and SSP (+4.6%).

In the red: Advanced (-5.3%), ELM (-4.7%) and Sipchem (-4.3%).

THE CLOSING BELL: NOMU-

The NomuC rose 1.4% last Thursday on turnover of SAR 11.4 mn. The index is up 6.9% YTD.

In the green: Mulkia (+5.4%), Sure (+5.4%) and Ladun (+4.9%).

In the red: Mayar (-6.8%), Tadweer (-3.9%) and Raoom (-2.7%)

CORPORATE ACTIONS-

#1- Shareholders of Bank AlJazira approved a 25% capital hike to SAR 10.3 bn through capitalizing some SAR 2.1 bn from statutory reserve, it said in a disclosure to Tadawul. The capital hike is intended to strengthen the bank’s capital base so it can achieve its strategic goals.

#2-Agriculture firm Thimar Development obtained the Capital Market Authority (CMA) to decrease capital by 74% to SAR 65 mn from SAR 250 mn, according to a CMA statement. The approval is contingent on the EGA’s approval and completion of regulatory procedures.

#3- Shareholders of Americana have approved a dividend of USD 129.7 mn at USD 0.0154 per share for 2023 and a special dividend of USD 49.7 mn special dividend at USD 0.0213 apiece, it said in a disclosure to Tadawul. They also approved a share buyback of SAR 25 mn to be allocated to the MENA restaurant operator’s employees’ stock long-term incentive plan, according to a separate disclosure.

#4- Shareholders of Saudi Cement approved a dividend payout of SAR 153 mn at SAR 1 a share for 2H 2023, it said in a disclosure to Tadawul.

#5- Investment management company Pinnacle Capital has been cleared by the Capital Market Authority (CMA) to operate and manage investments in the securities business after fulfilling all requirements, according to CMA statement.