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Gold demand remains stable – WGC

14th May 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Gold demand for the first three months of this year was 1 079 t, down 11 t, compared with the first quarter of 2014, the World Gold Council (WGC) said in its latest ‘Demands Trends’ report, released on Thursday. 

In value terms, gold demand in the first quarter was $42-billion, down 7% compared with the first quarter of 2014, while the average gold price of $1 218.5/oz was down 6% year-on-year.

“At a high level, gold demand is pretty stable. The headline stability masks quite a divergent picture when you get to the more granular data,” WGC market intelligence head Alistair Hewitt told Mining Weekly Online in a telephone interview.

“One of the most interesting elements is investment demand,” he said, adding that this sector saw a 4% increase to 279 t in the first quarter, up from 268 t in the prior comparative period.

“This was actually the best start to a year in [this] category, since 2012. . . [owing to] exchange-traded funds (ETFs) and the bar and coin market,” he noted.

The quarter saw an increase of 26 t into gold-backed ETFs as Western investor sentiment returned to gold. “This time last year, a lot of [investors] asked us how much further gold could fall, when we saw a near 30% drop in the gold price.

“We’re not saying that sentiment has entirely turned; there is quite clearly still an element of bearishness, but we are hearing more people ask us what the trigger for gold to start edging higher could be.

“There is a change in atmosphere,” he said. However, the bars and coins market came under pressure, with demand down 10%, in the face of buoyant stock markets, notably in India and China, and currency fluctuations in Turkey and Japan, while strong retail investor demand in the eurozone was up 16% to 61 t, most notably in Germany and Switzerland.

“This could actually be a good opportunity for people to capitalise on their holdings,” Hewitt added.

Conditions differed from market to market but, at an aggregate level, these differences broadly balanced each other out. Once again, consumers in Eastern countries dominated the market, with China and India alone accounting for 54% of total global consumer demand in the quarter.

Global demand for jewellery, still the most significant component of overall demand, totalled 601 t for the quarter, falling 3% from the 620 t recorded in the same quarter last year. There were pockets of strength across a number of South East Asian countries, which “saw positive year-on-year growth in the jewellery market”, including Malaysia, Indonesia, South Korea, Thailand and Vietnam – all between 5% and 10%.

“The highlight really is India, where we saw demand up 22% to 151 t and, if we look toward the West, we can see that US demand was up 4%. This makes it eight out of the past ten quarters where the US has seen steady year-on-year growth,” Hewitt said.

He added that, inevitably, there would be some negatives in this market. Declines were experienced in Turkey, Russia, the Middle East and China –“a huge market” where jewellery demand dropped 10% to 213 t, as a rising stock market diverted money into equities, but nonetheless still up 27% against the five-year average.

Central banks saw “another strong quarter again”, as they continued to be strong buyers, purchasing 119 t in the quarter, the same volume as last year.

This was the seventeenth consecutive quarter that central banks have been net buyers of gold. “The key message here is that central banks continue to seek diversification away from the US dollar, [holding] gold as [a] stable asset for the reserves,” Hewitt said.

Total supply remained virtually unchanged at 1 089 t, as a 2% rise in the first quarter mine production to 729 t was balanced by a 3% fall in recycling to 355 t, compared with the same quarter last year.

Hewitt, meanwhile, noted that “South Africa doesn’t really appear on our radar as it does not consume that much gold, so from the demand side, it isn’t the most significant element within the global gold market.”

However, he pointed out that the country played a “crucial role” and that it was “incredibly important” on the supply side. “Over recent years, South Africa has been between the sixth and seventh largest gold producing country in the world, with some of the largest resources,” he added.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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