Will Technology Spur Gold Demand?

This week, the WGC released a market update entitled “Technology – a brighter outlook?”. What are the main conclusions of the report?

On Tuesday, the World Gold Council published its latest report about the technology sector’s demand for the yellow metal. The main point is that we see a rebound in gold’s use in electronics. As it is commonly known, gold’s physical properties (such as high electrical conductivity) make it an excellent metal for wide use in electronics. But due to high prices and the advancing substitution in the electronics sector, the volume of gold used in technology has decreased in recent years.

However, the demand from electronics has been growing since the last quarter of 2016. The WGC noted that the technology demand grew in Q3 2017 for the first time since 2010. This is why the organization believes that the major fall in demand for gold in the electronics sector may be behind us, and that the outlook is brighter. The main reason is the rising electrification of the world (think about the Internet of Things or the electric car revolution we analyzed in August edition of the Market Overview) with the ever-increasing demand for memory chips, and a new generation of smartphones. And gold’s application in solar energy technologies is growing as well. Last but not least, nanoparticles of gold may also be used in catalytic convertors in vehicles instead of palladium or platinum.

What does it all means for the price of gold? Well, not much, actually. As we continuously repeated, gold as an investment should not be analyzed like a commodity, but as a currency or monetary asset, as the yellow metal is not consumed like other commodities. It means that it does not derive its economic value from being used as an input in the industrial production. Hence, technology barely affects the price of gold. Even according to the WGC data, which we see as inaccurate, the technology demand for gold accounts only for about 17.6 percent of the total demand. Will a 2-percent increase in technology demand (in Q3 2017, y-o-y) drive gold prices? We dare to doubt.

Summing up, the WGC released this week a new market update. It was interesting to read about changes in gold’s use in technology, but investors should not count on them when trading bullion. There are better gold investment ideas than betting on the technological breakthrough boosting the demand for the yellow metal.