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, according to the World Gold Council’s (WGC) Gold Demand Trends report.
According to the report, 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 percent, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases, the report said.
It said inflows into ETFs totalled 364 tonnes in the quarter – the highest quarterly level since Q1 2009 – compared to 26 tonnes in Q1 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 US and global stock market turmoil.
Total bar and coin demand was 254 tonnes, marginally higher than the same period last year. Weakness in price sensitive markets was offset by strength elsewhere with 5 percent growth in China (62 tonnes) and strong demand in the US and the UK, which grew by 55 percent and 61 percent respectively. In total, investment demand was 618 tonnes, up 122 percent from 278 tonnes in the same period last year, igniting a rally in the gold price which appreciated by 17 percent in dollar terms during the quarter, a WGC statement said.
It said the strong investment performance was not reflected in the jewellery sector though, with demand levels 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 was greatly exacerbated by the industrial action in India.
Central banks remained strong buyers, purchasing 109 tonnes in the quarter, the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar.
“Two major themes emerged in the first quarter of 2016. Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant driver of gold demand, helping to push prices up 17 percent over the course of the quarter, as ETF inflows swelled, said Alistair Hewitt, Head of Market Intelligence at the World Gold Council.
Conversely, Hewitt said, jewellery demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42 day strike by jewellers in India.
“Looking ahead we anticipate that ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand. This, combined with an expected recovery in India, should see gold demand remain healthy over the course of 2016.”
According to the report, total supply for Q1 2016 saw an increase of 5 percent 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 Q1 2015), outweighed a marginal decline in recycling.
The key findings from the report for Q1 2016 are as follows:
- Overall demand for Q1 2016 increased by 21 percent to 1,290 tonnes, up from 1,070 tonnes in Q1 2015.
- Total consumer demand was 736 tonnes down 13 percen tonnes compared to 849t in Q1 2015.
- Global investment demand was 618 tonnes, up 122 percent from 278 tonnes in the same period last year.
- Global jewellery demand fell 19 percent to 482 tonnes versus 597 tonnes in the first quarter of 2015.
- Central bank demand dipped slightly to 109 tonnes in Q1 2016, compared to 112 tonnes in the same period last year.
- Demand in the technology sector fell 3 percent to 81 tonnes in Q1 2016.
- Total supply was up 5 percent to 1,135 tonnes in Q1 2016, from 1,081 tonnes in the first quarter of 2015. Mine supply was up 8 percent to 774 tonnes.