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Global gold demand slumps 16% in Q2

In the quarter ended June this year, global gold demand fell 16 per cent year-on-year to 963.8 tonnes, according to the latest World Gold Council report. As such, the demand was lower than its five-year average of 1,062.6 tonnes.

Jewellery demand was about a third of the level seen in the year-ago period, while demand for bars and coins was less than half, the report said. Gold exchange-traded funds, meanwhile, saw a modest outflow of 39.9 tonnes, about 90 per cent lower than the 402.2 tonnes in the corresponding period last year. Overall investment demand rose a modest four per cent annually.

Central banks continued to make net additions to gold reserves, said the report, co-authored by Louise Street, Krishan Gopaul, Alistair Hewitt and Marcus Grubb. Together, central banks bought 117.8 tonnes of gold in the June quarter.

“The recent quarter saw the US dollar gold price hold within a relatively narrow sideways range, resulting in price volatility in the second quarter being well below average levels. This became something of a self-fulfilling cycle, as gold investors, lacking strong conviction in their price expectations, held off from buying gold, further contributing to the subdued price environment,” the report said.

“The second quarter saw a continuation of many factors that were in play during the first—-the huge stockpiling of gold that took place in Asian markets during 2013 was still, to an extent, being digested; the election and import restrictions forestalled Indian consumers; bar and coin investors continue to sit on the sidelines; and jewellery consumers in the US and the UK were further encouraged by improving economic conditions,” it added.

Jewellery demand
On an overall basis, demand for gold jewellery was 30 per cent lower in the June quarter, with Asian countries recording double-digit declines. Western markets, however, made year-on-year gains, with the exception of Italy.

In India, general elections in May saw limited high-value purchases and kept demand under check. Investors remained in a wait-and-watch mode to see whether the newly-elected government would relax the import restrictions on the commodity.

Investors also refrained from adding to their bar and coin holdings. The sideways range that defined the gold price for much of the second quarter also contributed to the subdued demand in this segment, as globally, investors looked for stronger cues on the direction.

According to the report, India and China together accounted for about half the 56 per cent annual decline in demand in this segment. Chinese investment demand declined to its lowest in about four years, with both commercial banks and jewellers seeing a slump in the sales of bars and coins

Investment demand in India continued to be hampered by government policies that banned gold coin imports. As with the jewellery segment, coin and bar purchases were impacted by pre-election restrictions on the free transport of large amounts of cash and assets, as well as by uncertainty over whether the incoming government would loosen import regulations.

Going ahead, the progress of the monsoon, which is currently below average levels, will be an important factor in determining whether investment demand recovers back to longer-term average levels towards the end of the year.

GOLD DEMAND OVERVIEW
  Q2’13 Q2’14 %chg (y-o-y) 5-year average
      Tonnes US$ (mn) Tonnes US$ (mn)
Jewellery 726.7 509.6 -30 -36 522.6 23,337
Technology 103.8 101 -3 -11 108.8 4,847
Investment 225.7 235.4 4 -5 349.3 15,996
 – Total bar and coin demand 627.9 275.3 -56 -60 343.2 15,740
 – ETFs and similar products -402.2 -39.9 6.1 256
Central bank net purchases 92.1 117.8 28 17 82 3,999
GOLD DEMAND 1148.3 963.8 -16 -24 1062.6 48,180
Source: WGC report

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