Mining Weekly

Global gold demand reached 1 290 t in the first quarter of 2016 – a 21% year-on-year increase. This was the second-highest quarterly demand on record, according to the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ (GDT) report.

The higher demand was driven by significant inflows into exchange-traded funds (ETFs), which reached 364 t in the first quarter – the highest quarterly level since the first quarter of 2009, and significantly higher than the 26 t recorded in the first quarter of 2015.

The first quarter’s record gold demand was “remarkable”, with increasing momentum behind investor uncertainty and “investors of all stripes”, such as central banks or wealth managers, which started to recognise a more fragile world in terms of economic recovery and economic outlook, WGC member and investor relations head John Mulligan tells Mining Weekly.

Total consumer demand was down 13%, from 849 t in the first quarter of 2015, to 736 t in the first quarter of this year.

Global jewellery demand fell 19% to 482 t, compared with 597 t in the first quarter of 2015, as a continued lack of consumer confidence, higher prices, jewellery manufacture excise duties and industrial action in India, as well as a weakening economy in China, resulted in many consumers delaying purchases.

“However, we believe that Indian demand has simply been postponed, with buying likely to increase for the Akshaya Tritiya festival (held this month) and the upcoming wedding season,” WGC market intelligence head Alistair Hewitt notes.

Meanwhile, global investment demand for gold was up 122% to 618 t, from 278 t in the same period last year.

“This investment represents nearly half of all demand this quarter – driven by a substantial shift in sentiment that has been gaining momen-tum for some time,” says Mulligan. This demand ignited a rally in the gold price, which appreciated by 17% in dollar terms during the quarter.

Further, total bar and coin demand was 254 t, marginally higher than demand in the same period last year.

Despite central bank demand dipping slightly to 109 t in the first quarter of this year, compared with 112 t in the same period last year, the banks remained strong buyers, with the first quarter being the twenty-first consecutive quarter during which central banks were net buyers of gold as they continued to diversify asset portfolios away from the US dollar.

The WGC expects the traditional physical markets to be the main drivers of future demand, with India and China responsible for 50% of demand over the longer term, Mulligan says, adding that it would not be a surprise if the same trend for 2015 – a difficult first half and a strong second half of the year – continued in 2016.

“Gold . . . is a growth market. Quarter-by-quarter demand fluctuates, but, over the long term, we are confident [of] a significant source of demand,” Mulligan stresses, adding that modernising gold markets in Asia, new ways of buying gold (as seen in Europe) and access to gold will drive sustainable demand.

Mine Supply
Total supply in the first quarter was up 5% year-on-year to 1 135 t, with hedging adding 40 t to the hedge book in the first quarter, bringing it to 253 t.

“One of the main motivations behind increased hedging was to lock in the local producer price advantage,” Mulligan suggests, noting that, for countries such as Australia, South Africa and Russia, a producer-weighted gold price index suggests local prices at almost record highs – at up to 45% higher than the US dollar price of gold.

However, the increase by 8% to 774 t in mine supply was modest. During the first quarter, mine production totalled 734 t, a modest 5 t increase on the 729.4 t output in the first quarter of 2015.

With some momentum behind the elevated levels of mine production over the past few years that remained in the system, global production was plateauing. The WGC expects these supply levels to remain at similar levels for some time, before declining in future, Mulligan concludes.