Gold shines brighter than ever

Abdul Basit/Dubai

Filed on May 12, 2016 | Last updated on May 12, 2016 at 08.40 pm

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Global demand surges 21% despite decline in jewellery appetite in India and China

Global gold demand reached at record levels in the first quarter of 2016 despite significant declines in jewellery demand in top consumer countries India and China, the World Gold Council said in its quarterly report on Thursday.

Global gold demand reached 1,290 tonnes in the first quarter of 2016, a 21 per cent increase compared to the same period last year, making it the second largest quarter on record.

This increase was driven by huge inflows into exchange traded funds (ETFs), fuelled by investor concerns regarding economic fragility and an uncertain financial landscape.

"Two major themes emerged in the first quarter of 2016. Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant driver of gold demand," the WGC's head of market intelligence Alistair Hewitt said.

Concurrently, global demand for jewellery was down 19 per cent, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases.

"Conversely, jewellery demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42-day strike by jewellers in India," Hewitt said.

Jewellery buying, the largest demand segment, fell as Chinese jewellery consumption slid 17 per cent to 179 tonnes, hit by higher gold prices. Bar and coin demand in China rose five per cent, however, while Indian buying fell 31 per cent.

India's jewellery offtake also slid 41 per cent to a seven-year low, after a strike among Indian jewellers in March. Few countries saw much of an increase in jewellery buying, though it rose 10 per cent in Iran after the lifting of Western sanctions.

Investment in products like ETFs, coins and bars more than doubled to 618 tonnes, accounting for 28 per cent of the total. That helped fuel a 16 per cent surge in gold prices in the period, its biggest quarterly rise in nearly 30 years.

"Looking ahead we anticipate that ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand. This, combined with an expected recovery in India, should see gold demand remain healthy over the course of 2016," Hewitt said.

Central banks remained gold buyers for a 21st straight quarter, with China and Russia driving purchases of a total 109.4 tonnes of gold. That is its weakest quarter since the last three months of 2013, however. On the supply side of the market, increased hedging - which roughly translates as producers selling output forward to lock in prices - and a slight rise in mine supply pushed up overall output by five per cent, despite lower recycling.