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Commodities

Global gold demand drops in first half as speculative Chinese investors stay away

In contrast, global demand for gold bars and coins, as well as for jewellery has improved in the first half of 2017

PUBLISHED : Thursday, 03 August, 2017, 9:00pm
UPDATED : Thursday, 03 August, 2017, 9:07pm

Global demand for gold dropped 14 per cent to 2,003.8 tonnes in the first half of 2017, as Chinese gold-backed exchange traded fund (ETF) holdings shrank in the second quarter of the year, while Europe which dominated the ETF market, accounted for 76 per cent of inflows in the six months, according to the World Gold Council’s report on Thursday.

Chinese gold-backed ETF holdings having risen more than six-fold in 2016, dropped by 4.8 tonnes to 20 tonnes in the second quarter at the end of June, the report said, adding that this volatility in part reflected the “speculative investment behaviour” that is more prominent in China than in many other markets.

“According to our research, 54 per cent of Chinese investors described the role of their investment in gold-backed ETFs as being either speculative or for short-term returns, compared with just 25 per cent of investors in gold bars and coins,” said the report.

But according to the council, outflows in Chinese gold-backed ETF holdings had one positive consequence: strategic long-term investors now account for a greater share of the holdings in the fund.

European ETFs accounted for 76 per cent of first-half inflows, taking their holdings to a record 978 tonnes.

According to our research, 54 per cent of Chinese investors described the role of their investment in gold-backed ETFs as being either speculative or for short term returns, compared with just 25 per cent of investors in gold bars and coins
World Gold Council

In general, purchases from global ETFs dropped sharply from 579.4 tonnes in the first half of 2016, to 167.9 tonnes for the same period this year, contributing primarily towards the 14-per cent drop in global demand for gold in the first six months of this year.

In contrast, global demand for bar and coin, as well as jewellery, has strengthened in the first half, with Chinese demand for bar and coin increasing 56 per cent year on year to reach 62.6 tonnes in the second quarter.

Jewellery purchases rose eight per cent to 480.8 tonnes during the second quarter, thanks to the strong gains in India, with it still remaining well below the five-year quarterly average of 586.2 tonnes.

Indian demand for jewellery shot up to 126.7 tonnes in the second quarter, compared with just 89.8 tonnes for the same period last year. The strong gains came on the back of a string of festivals, weddings and improved rural sentiment.

China retains crown as world’s top gold consumer, amid softening yuan and financial market volatility

But China, the world’s largest gold market, saw demand for jewellery in the second quarter weakened to 137.7 tonnes, down five per cent from a year ago.

As younger Chinese customers shift away from pure 24k gold, which is well sought-after by the country’s older generation, lower-carat, higher-designed and higher-margin gold jewellery had become the dominant trend, the report said.

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