Global Gold demand plunges during Q1 2017

UNITED KINGDOM May 05 2017 8:14 AM

NEW YORK (Scrap Register): Global gold demand was down 18% on an annual basis in the first quarter of 2017, but the data was largely skewed by the “strongest ever first quarter” in 2016, which overshadowed the robust and healthy appetite for the yellow metal this year, World Gold Council (WGC) said in its latest report.

In its ‘Gold Demand Trends Q1 2017’ overall demand was at 1,034 tonnes in Q1 2017, which is a decline of 18% compared to 1,262 tonnes registered in Q1 2016.

“A key reason why demand doesn’t look as strong in Q1 2017 is because demand in Q1 2016 was exceptionally high, especially on the investment side. Just to put things into context, ETF flows were the second largest on record. Anything you compare to such a high figure is going to look small,” Juan Carlos Artigas, director of investment research at the WGC.

“But when you look at it in context, Q1 2017 was a robust quarter, just not as remarkable as the first quarter of 2016. There was good demand coming from the investment market in Q1 of this year, from both bars and coins as well as ETFs. In particular, European ETFs had strong flows,” Artigas explained.

For example, global holdings of gold-­backed ETFs grew by 109.1 tonnes in Q1, just a fraction of last year’s near-record inflows, according to the report. 

“But this is more an indication of the atypical strength of 2016 inflows than of recent weakness. Indeed, inflows of 109.1t are in line with quarterly average between Q1 2009 and Q4 2011 (108.7t), a period that encompassed the global financial crisis,” the report stated. 

Majority of ETF inflows were concentrated in Europe, largely driven by geopolitical instabilities, Artigas said.

“Investors are buying gold as a way to manage their portfolio risk,” Artigas noted. “This year, there were uncertainly around elections, the rise of more nationalists parties, putting into question whether the euro will remain a currency for the long-run. And for Britain, even though the decision to leave the EU happened last year, it is not until now that negations are really starting.”

Investment in gold bars and coins grew by 9%, reaching 290 tonnes on an annual basis in Q1 of this year, with China leading the quarterly growth, the report added. Jewelry demand was steady at 480.9 tonnes, with moderate gains mainly coming from India. Gold demand coming from the technology sector was up 3% at 78 tonnes, led by electronics.

Total gold supply tumbled 12% to 1,032 tonnes in Q1 2017, according to the report. “Lower levels of recycling and continued net de-hedging by producers explain the drop; mine production was virtually unchanged,” it stated. 

The demand for gold from central banks continued to fall in Q1, with only 76 tonnes added to foreign reserves. This was partly explained by the fact that “China’s purchasing program was on pause during the quarter as its foreign exchange reserves remained under pressure,” the report said.

Gold still remains an important investment for central banks around the world, noted Artigas. “It is as a way to diversify foreign reserves. For many banks, especially in emerging markets, have a lot exposure to the U.S. dollar and U.S. Treasuries. And gold becomes a natural hedge in terms of their diversification,” he said.

The report’s overview of the gold market shows a global nature of the yellow metal, added Artigas. 

“Oftentimes investors in the U.S. say that ‘what matters for gold is what the Fed and dollar are doing’. But, in reality gold is a global market. And European investors use gold often as a way to manage risk and protect assets and obtain returns. And in the first quarter we saw just that — strong demand coming from Europe. It is not just about the U.S., it matters what happens in Europe, and it matters what happens in Asia,” he said.

Artigas is positive when it comes to future gold demand. He said one thing investors can look out for is income growth, which tends to be a good source of support for gold demand. “As economies in the West and Asia start to recover and grow more, it will put more money in people’s pockets, which means more consumption of jewelry and savings, some of which may go to gold,” Artigas explained.