Gold bars
Photo by: Bloomberg
JOHANNESBURG (miningweekly.com) – The World Gold Council is optimistic that there will be an increase in demand for physical gold in the second half (H2) of this year, when it expects a seasonal demand increase in India and gold’s lower price to feed through into stronger consumer demand.
Against the background of second quarter (Q2) gold demand falling 12% to 915 t, its lowest level in six years, the World Gold Council expects a considerably better H2, the initial weeks of which have already seen significant developments.
“Q2 has been challenging, but we’re optimistic for the second half,” World Gold Council market intelligence head Alistair Hewitt commented to Creamer Media’s Mining Weekly Online in a conference call from London.
Notable is the decision of the People’s Bank of China to lift its gold holdings by 57% to 1 658 t.
“This is an overwhelmingly positive signal,” said Hewitt.
The World Gold Council expects gold demand in China – which became the world’s largest gold market in 2013, accounting for about a third of global gold demand – to grow by at least a further 20% by the end of 2017.
Higher H2 demand is also expected in India, where the reserve bank last week announced its expectation of a harvest-enhancing average monsoon and where the World Gold Council is maintaining its 900 t to 1 000 t demand forecast for the subcontinent, where Diwali has still to play its gold-positive role.
In the US, retail investors struck an early H2 high note for gold by snapping up 170 000 oz of American Eagle gold coins from the US Mint, the highest in more than two years.
In Europe, fears of a potential Greek exit from the eurozone saw Q2 retail investment in gold rise 19% to 47 t, on 7%-higher gold demand in Germany and 6%-higher gold demand in both the UK and Spain.
At official level, the central bank trend of being net gold buyers for 18 quarters is expected to continue going forward.
“I continue to see central banks as a core pillar of gold demand for the rest of the year,” Hewitt told Mining Weekly Online.
The World Gold Council has forecast 2015 gold demand from central banks at 400 t to 500 t, with buying close to the upper range expected.
Net official Q2 purchases totalled 137 t, with Russia and Kazakhstan the biggest buyers. Russia accounted for 67 t in Q2, up on its 60 t in Q1.
On the supply side, recycling of gold is expected to remain down and mine production expected to taper off as gold mining companies optimise their operations and rationalise their costs.
Total Q2 supply was down 5% to 1 033 t, with the 3% rise in mine production to 787 t offset by the 8%-lower recycling contribution at 251 t.
The major cutback in the past three years on expenditure for gold exploration and gold mine development is expected to create a significant supply lag in the years to come.