Global gold investment demand up 122% in Q1’16: WGC

According to World Gold Council’s Gold Demand Trends report, global gold demand reached 1,290 tonnes (t) in the first quarter of 2016, a 21 percent increase compared to the same period last year, making it the second largest quarter on record. This increase was propelled by the heavy traffic in exchange traded funds (ETFs), fuelled by investor concerns regarding economic fragility and an uncertain financial landscape.

In total, investment demand was 618t, up 122 percent from 278t in the same period last year, igniting a rally in the gold price which appreciated by 17 percent in dollar terms during the quarter.

Inflows into ETFs totalled 364t in the quarter - the highest quarterly level since Q1 2009 - compared to 26t in Q1 2015. Gold was preferred 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.

There was a marginal increase (on y-o-y basis) in total bar and coin demand which stood at 254t,. Weakness in price sensitive markets was offset by strength elsewhere with 5 percent growth in China (62t) and strong demand in the US and the UK, which grew by 55 percent and 61 percent respectively.

Global demand for jewellery fell 19 percent owing to higher prices and industrial action in India and a softening of the economy in China, leading to consumers delaying purchases. Demand levels slipped in India and China. Both countries had a slow start to the year as a result of consumer uncertainty and rising gold prices, but it accelerated by the industrial action in India.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said: “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. Conversely, 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.

Speaking on the future trends for gold, Alistair Hewitt added, But we believe Indian demand has simply been postponed, with buying likely to increase for Akshaya Tritiya and the wedding season. 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.”

Central banks remained strong buyers, purchasing 109t in the quarter. This represents the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar. Total supply for Q1 2016 rose 5 percent to 1,135t compared with 1,081t in the first quarter of 2015.