OREANDA-NEWS. April 01, 2015. Last week, the World Gold Council (WGC), which is the market development organisation for the gold industry, released the eighth volume of its Gold Investor publication. This educational study examined the impact of a rising US dollar and higher US interest rates on gold prices. 

WGC on Past US Dollar Gains

The WGC outlined that in the past, gold prices increase more when the dollar weakens than they fall when the dollar strengthens. The dollar’s relationship with gold has also changed over past decades and is likely to evolve further as demand moves to Asia and the world shifts to a multicurrency system. Annualised returns for the price of gold from January 1973 through to December 2014 were 14.9% on a falling US dollar, 7.8% when the dollar was flat and -6.5% when the dollar was rising.

WGC on Past US Interest Rate Gains

As for the specter of higher interest rates, a Fed hike may not have the devastating impact on gold as many may expect, the WGC wrote in its report. First, the negative relationship between real rates and gold is related to investment, but not all demand is investment, as some 60% of gold consumption is jewelry and technology-related. Second, with developed market demand now accounting for less than 30% of the global pie, the inverse relationship between gold and US interest rates is weaker than it once was, it added.

WGC on Past Portfolio Allocations

The portfolio application of gold was also discussed. The WGC suggested that in the interests of diversification, a portfolio that was generally weighted 60% to stocks and 40% to bonds would have benefited from a 4% allocation to gold in a rising US dollar environment.  

In recent years, the process of portfolio construction has been made more efficient with Exchange Traded Funds (ETFs) that track the indices of stock, bonds and gold. The SPDR® GOLD SHARES has an investment objective to track the performance of the price of gold bullion (click here to view additional information on the ETF). The Gold ETF does not distribute dividends. In the year thus far, SPDR® GOLD SHARES has declined 1.1%, taking its 12-month loss to 8.7%.

The consistent daily turnover in the Gold ETF over the past two years is detailed in the chart below. Over the period, the Gold ETF declined 28.6% in price. The average daily turnover for SPDR® GOLD SHARES traded on SGX over the inclusive period of February 2013 through to February 2015 was S\\$2.6 million. In terms of comparative bid and ask prices, the Gold ETF traded on SGX maintains an average spread of less than 7 basis points compared to the 10 basis points for the listing on Tokyo Stock Exchange (TSE) and 12 basis points on Hong Kong Exchanges and Clearing (HKEx). In terms of turnover market share the GOLD ETF on SGX maintains the highest market share in Asia.

Gold ETF average daily turnover

Source: SGX

Gold Mining Pure Plays

Singapore Exchange also lists two gold miners on the Catalist Board – CNMC Goldmine and Wilton Resources. Over the past 12 months, CNMC Goldmine has declined 4.0% in price, while Wilton Resources has fallen 31.2% in price. CNMC Goldmine has also paid dividends over the past year, with a total of three ex-dividend distributions amounting to 0.4 cents. Dividends proposed on 16 February, however, are subject to shareholders’ approval at the annual general meeting of the Company to be held in April 2015.

Wilton Resources Corporation

According to SGX StockFacts, Wilton Resources Corporation engages in the exploration, mining, and production of gold in Indonesia. It holds interest in the Ciemas Gold Project, comprising two concession blocks covering a total area of 3,078.5 hectares located in Ciemas District, Sukabumi Regency, West Java Province of Indonesia. The company was incorporated in 2003 and is based in Singapore. As noted in their Annual Report 2014 , the Ciemas Gold Project has estimated Mineral Resources totalling 4,640 kilotonnes (“kt”), across all Mineral Resource categories, and containing an estimated 38,970 kg of gold (approximately 1,250,000 troy ounces).

CNMC Goldmine Holdings

SGX StockFacts shows that CNMC Goldmine Holdings, an investment holding company, is engaged in the exploration, development, mining, and marketing of gold in Malaysia. The company’s flagship project includes the Sokor Gold Field project that consists of a mining license, covering approximately 10 square kilometers, located in the district of Tanah Merah, Kelantan, Malaysia. It also processes mined ore into gold dore. The company was founded in 2006 and is headquartered in Singapore. The company reported that their revenue for the fourth quarter increased by 32.6% to US\\$ 9.8 million. This increase in revenue was mainly due to an increase in sales volume of fine gold, from 5,813 ounces to 7,975 ounces.