Gold demand cools in Q2

The following is an edited summary of the World Gold Council’s Gold Demand Trends report for this year’s second quarter. For the full report, please visit www.gold.org.

Global gold demand in the second quarter of 2017 was 953 tonnes — a 10% fall compared with the same period in 2016. This was reflected in a 14% decline in demand for the first half of 2017, which slowed to 2,004 tonnes, according to the World Gold Council’s latest Gold Demand Trends report.

After record levels of inflows into exchange-traded funds (ETFs) in the first half of 2016, a slowdown in the sector was the main factor behind the fall in demand this year. Net central bank purchases of 177 tonnes in the first half of 2017 were also slightly lower compared to the same period in 2016, down 3%. By contrast, the first half of 2017 saw bar and coin investment grow, as did both jewellery and technology demand, each making modest gains compared to 2016.

ETF inflows slowed dramatically from last year’s record pace. Nevertheless, holdings in the sector grew, adding 56 tonnes in the second quarter, and bringing total inflows in the first half to 168 tonnes. European ETFs saw the strongest first-half inflows, with holdings in these funds reaching a record 978 tonnes.

Bar and coin investment rebounded from very low levels last year. Second-quarter demand gained 13% from second-quarter 2016 to 241 tonnes, while first-half demand rose 11% to 532 tonnes. India contributed to the recovery, having been particularly weak last year. Turkey also saw a jump in demand, due to the country’s economic recovery, double-digit inflation and relative currency stability.

Jewellery demand also strengthened from a weak 2016 to 481 tonnes, but fell short of the long-term average. India was the main contributor to the 8% gain in the second quarter. 

Central banks continue to buy gold, but at a more modest pace than in recent years, totalling 94 tonnes, for a 20% increase on the previous year. The most recent quarter saw Turkey’s central bank add to its gold reserves — its first significant purchase since the 1980s.
Technology demand registered its third quarter of growth, up 2% to 81 tonnes. Increasing adoption of wireless charging and the development of LED features has boosted demand. The busy release schedule of smartphone handsets in the second half also supported memory-chip production.

Supply fell 8% to 1,066 tonnes this quarter compared with the same period last year. This was largely led by a steep drop in recycling, down 18% to 280 tonnes, and a continuation of net de-hedging, albeit by a modest 5 tonnes, in the subdued second-quarter price environment. Mine production stayed flat, falling 3 tonnes to 791 tonnes. 

The year-on-year comparison for recycling was also affected by the elevated levels seen in the first three quarters of 2016, when the rapidly increasing global gold price, along with a tax amnesty in Indonesia, enticed consumers to liquidate their assets. The first half of 2017 represents a continued “normalization” of recycling in most markets.