Global gold demand declines in Q2; lowest in first half since 2009

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Global gold demand remained muted in Q2 2018 at 964 tonnes, 4 per cent below the same period in 2017, according to the World Gold Council’s latest Gold Demand Trends report.

Slower inflows into gold-backed exchange-traded funds (ETFs) created a weak comparison against the highs of last year, contributing to the lowest first half year (H1) demand since 2009. Whilst China, the world’s largest gold market, saw a 7 per cent rise in consumer demand.

ETF inflows continued, albeit at a much slower pace compared with the high levels seen in 2016 and 2017. Inflows were down 46 per cent y-oy. However, European-listed funds saw decent inflows we believe due to uncertainty stemming from Italian elections and monetary policy outlook. In contrast, holdings of North American-listed funds fell by 30.6 tonnes as investors focused on domestic economic strength.

Despite the second quarter (Q2) decline, H1 jewellery demand was scarcely changed at 1,031 tonnes. Weaker demand in India and the Middle East in Q2 was only partly offset by growth in China and the US, both up 5 per cent compared with the previous year. Indian demand fell 8 per cent y-o-y, crimped by higher local prices, as well as by seasonal and religious factors.

The key findings included in the Gold Demand Trends Q2 2018 report are as follows:

  • Overall demand was 964 tonnes, a decrease of 4 per cent compared with 1,008t in Q2 2017
  • Total consumer demand fell by 1 per cent to 758 tonnes from 767 tonnes in the same period last year
  • Total investment demand was down 9 per cent to 281 tonnes compared with 310 tonnes in Q2 2017
  • Global jewellery demand fell 2 per cent to 510 tonnes, from 519 tonnes in the same period in 2017
  • Central bank demand decreased by 7 per cent to 89 tonnes compared with 96 tonnes in Q2 2017
  • Demand in the technology sector increased 2 per cent to 83 tonnes compared with 81 tonnes in Q2 2017
  • Total supply was up 3 per cent to 1,120 tonnes, from 1,086 tonnes in the same period last year
  • Recycling was up 4 per cent to 295 tonnes, compared with 283 tonnes in Q2 2017

Q2 2018 saw the seventh consecutive quarter of year-on-year growth in the technology sector, with demand up 2 per cent to 83 tonnes. Gold used in electronics continued to thrive, due to enduring demand for smartphones, games consoles and vehicles. H1 demand reached a three-year high of 165 tonnes.

Global bar and coin investment was virtually unchanged at 248 tonnes. Stronger demand in China and Iran – fuelled by increasing geopolitical tensions with the US – were offset by falls in Turkey, India and Europe, where local prices remained elevated.

Central banks added 89 tonnes of gold to global official reserves in Q2 2018, down 7 per cent compared with Q2 2017. Cumulative H1 2018 purchases of 193 tonnes were the highest since 2015. Alongside the familiar cast list of Russia, Turkey and Kazakhstan, the Reserve Bank of India returned to the market, albeit with only a very small purchase (+2.5 tonnes).

“It’s interesting how investors around the world have reacted to some of the risks stalking financial markets. Weaker economic prospects and tumbling currencies off the back of heightened tensions with the US boosted Chinese and Iranian gold demand, while US investors shrugged off any geopolitical concerns. Demand from tech companies continued to grow, with H1 demand reaching a three-year high, while economic growth boosted jewellery demand in the US with Q2 demand hitting a ten-year high,” said Alistair Hewitt, Head of Market Intelligence at the World Gold Council.

The total supply of gold increased by 3 per cent in Q2 2018 to 1,120 tonnes, supported by increased mine production and recycling growth. Mine production in Q2 saw a rise of 3 per cent to 836 tonnes, the highest Q2 on record, as projects in Russia, Indonesia and Canada continued to ramp-up. Gold recycling also grew, as currency weakness in India, Turkey and Iran boosted local gold prices and encouraged consumers to lock in profits from their holdings.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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