World Gold Council: Demand up in Q1

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

Global gold demand reached 1,290 tonnes in the first quarter of 2016 — a 21% 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. Concurrently, global demand for jewellery was down 19%, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases.

Inflows into ETFs totalled 364 tonnes in the quarter — the highest level since first-quarter 2009 — compared to 26 tonnes in first-quarter 2015. Gold found favour as a risk diversifier due to the negative interest rate environment in Europe and Japan, combined with uncertainty over the Chinese economy, anticipation of slower interest rate rises in the U.S. and global stock market turmoil.

Total bar and coin demand was 254 tonnes, which is marginally higher than the same period last year. Weakness in price-sensitive markets was offset by strength elsewhere, with 5% growth in China (62 tonnes) and strong demand in the U.S. and the U.K., which grew 55% and 61%. Total investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year, which ignited a rally in the gold price that appreciated 17% in dollar terms during the quarter.

The strong investment performance was not reflected in the jewellery sector, though, with demand down in India and China. While both countries had a slow start to the year as a result of consumer uncertainty and rising gold prices, the situation worsened after industrial action in India.

Central banks bought 109 tonnes in their twenty-first straight quarter as net purchasers of gold, as they continue to diversify away from the U.S. dollar.

Total supply for first-quarter 2016 saw a 5% increase to 1,135 tonnes, compared with 1,081 tonnes in the first quarter of 2015. Increased hedging of 40 tonnes, coupled with slightly higher mine production of 734 tonnes (729 tonnes in first-quarter 2015), outweighed a marginal decline in recycling.