JOHANNESBURG (miningweekly.com) – Global gold demand declined by 16% year-on-year to 964 t during the three months ended June, as the gold market pulled back from the exceptional levels achieved in 2013, the latest World Gold Council (WGC) 'Gold Demand Trends' report has shown.

WGC market intelligence manager Alistair Hewitt said that, during the quarter, the gold market became steadier, heading back to its core long-term trends and “getting down to the solid core fundamentals of demand”.

“The year-on-year comparisons can paint a negative picture but [the second-quarter demand] is broadly in line with the ten-year average, which is comforting, and it is firmly in the range of demands that were established following the global financial crisis in 2008,” Hewitt told Mining Weekly Online.

In value terms, second-quarter gold demand amounted to $40-billion, down 24% compared with the second quarter of 2013. The average gold price of $1 288/oz was down 9% on the average price during the second quarter of 2013.

Meanwhile, Hewitt noted that global jewellery demand, which represented about 53% of the total second-quarter gold demand, declined 30% year-on-year to 510 t.

While this was a significant decline, Hewitt stated that it was important to note that the 2014 second quarter demand was 11% higher than that of the corresponding period in 2012, which supported the broad upward trend that had emerged since 2009.

“That [upward trend] is largely driven by two factors. Firstly, you have improving economies around the world, [which means that] people are feeling a bit wealthier. Then you also have the price fall or readjustment last year, which made jewellery a bit more affordable for a lot of people,” he explained.

Hewitt added that the WGC expected these two factors to add support and contribute to growing jewellery demand, which was expected to perform reasonably well over the longer term.

The WGC also found that India and China remained significant drivers of the global jewellery market, buying 154 t and 143 t respectively, while there were continued signs of recovery in some Western markets as jewellery demand in the US rose 15% to 26 t and 21% in the UK to 4 t.

Meanwhile, central bank demand increased 28% year-on-year to 118 t in the quarter under review.

Hewitt pointed out that this was the fourteenth consecutive quarter in which central banks were net buyers of gold, with this trend being driven by a number of factors, including a continued diversification away from the US dollar and the ongoing geopolitical tensions in Iraq and Ukraine.

Investment demand during the quarter was up 4% to 235 t, the WGC stated, noting that investment in bars and coins, however, stood at 275 t for the period, a fall of 56% following unprecedented levels of buying during the same period last year.

“In the second quarter of 2014, many investors were uncertain about the direction and momentum of the gold price, while traders in price sensitive markets were far less active due to low volatility,” the organisation pointed out.

The quarter did, however, see an improvement in investor sentiment towards exchange traded funds (ETFs) compared with last year, with outflows standing at 40 t for the quarter, which was only about a tenth of the redemptions seen during the second quarter of last year.

“A lot of investors now feel a lot more comfortable with their gold holdings so they are not selling, and you are not seeing the outflows of last year,” Hewitt stated.

Technology demand came in at 101 t, down 3% year-on-year, therefore, remaining relatively stable.

Hewitt expected that the normalisation and pullback in the gold market would continue in the third quarter as demand returned to its long-term trends.

“There are some encouraging signs that have been emerging over recent months. For example, on the ETF front, we have seen positive inflows into ETFs in July so, if that continues, that will be a welcome development going into the third quarter. But by large, a return to the long-term trends is what we expect for the remainder of 2014,” he stated.

SUPPLY
Total gold supply increased by 10% to 1 078 t during the second quarter as a result of growth in mine supply, which was up 4%. 

Hewitt noted the rise in mine supply was largely owing to new projects having come on line during the past six months.

“We have seen large projects in Canada and the Dominican Republic, resulting in incremental growth as a result of a ramp-up in production,” he said, adding that China had also increased its gold supply.

The WGC noted that mine supply had potentially peaked during this quarter and would likely plateau over the next four to six quarters as a result.

Further, first-half recycling was at its lowest level since 2007, but the figures for the second quarter of 2014 were up 1% year-on-year to 263 t.

Hewitt stated that this was owing to a stable gold price having discouraged consumers from selling their gold holdings, and the fact that economic distress, which had led to increased recycling in the past, had dissipated.

“We do not expect recycling to increase soon as a result of the main reasons behind its dynamic. We see that as being relatively stable over the following quarters,” he said.

Meanwhile, hedging contributed 50 t to gold supply over the quarter, as opposed to negative hedging of 15.1 t in the prior corresponding period.

The WGC stated that the 50 t of net hedging implemented during the second quarter was the result of a project-based transaction announced by Russian producer Polyus Gold International.