Gold demand falls 16pc in second quarter

India returns as largest buyer as purchasesof the yellow metal fall more steeply in China

PUBLISHED : Friday, 15 August, 2014, 1:09am
UPDATED : Friday, 15 August, 2014, 1:09am

Gold demand fell 16 per cent in the second quarter, led by declines in India and China, the World Gold Council said.

Global demand slipped to 963.8 tonnes from 1,148.3 tonnes a year earlier as jewellery purchases fell to the lowest since the fourth quarter of 2012, the London-based council said in a report.

China fell behind India as the largest consumer, with global jewellery buying dropping 30 per cent and bar and coin demand down 56 per cent. Mining companies hedged 50 tonnes as they continued selling future output.

China’s purchases slipped 45pc and those in India fell 18 per cent

Gold slid 28 per cent last year, the most in three decades, as investors lost faith in the metal amid expectations US policymakers would cut stimulus as the economy strengthens. Last year's price drop spurred jewellery, coin and bar demand, particularly in China.

Indian bullion buying has slowed as the government restricted imports to curb a current account deficit.

"Buyers in China and India were waiting to see a price trend develop," said Marcus Grubb, managing director of investment strategy at the council. "It's a market still returning to its fundamentals. It was an exceptional year and quarter last year."

Gold for immediate delivery traded at US$1,312.28 an ounce by in London yesterday for a 9.2 per cent gain this year. It averaged US$1,290 in the second quarter, down 9 per cent from a year earlier and little changed from the first quarter.

Global jewellery demand declined to 509.6 tonnes in the latest quarter, the least since the final three months of 2012. China's purchases slipped 45 per cent and those in India fell 18 per cent, with the countries together accounting for almost 60 per cent of world jewellery consumption. Buying rose 15 per cent in the US and 21 per cent in Britain as consumer confidence rose, it said.

Global bar buying slumped 57 per cent to 212.1 tonnes in the three months to June 30 and coin demand slid 50 per cent to 46.3 tonnes.

Global consumer demand was down 42 per cent to 784.9 tonnes, according to the report.

Total consumption in China, which overtook India as the biggest user last year, dropped 52 per cent to 192.5 tonnes, the council said. Indian demand fell 39 per cent to 204.1 tonnes, returning as the largest purchaser on a quarterly basis for the first time since the end of 2012.

Demand will total 900 to 1,000 tonnes in China this year and 850-900 tonnes in India, depending on Indian import restrictions and the strength of the country's monsoon, Grubb said.

Investors sold 40.5 tonnes through exchange-traded products in the second quarter. That compares with sales of 404.4 tonnes a year earlier. Assets reached 1,707.9 tonnes on June 20, the lowest since October 2009.

Central banks added 117.8 tonnes to gold reserves in the second quarter, up 28 per cent from a year earlier, according to the council. It expects them to add as much as 500 tonnes this year. Nations have been net buyers for 14 consecutive quarters, and added 409 tonnes last year, it said.

The council expects supply to peak this year and "plateau" over the next 12 to 18 months. Scrap supply was little changed at 262.7 tonnes in the quarter, while mine output rose about 4 per cent to 765.3 tonnes, according to the report.

Producer hedging, mostly from Polyus Gold International, rose from 8.6 tonnes in the first quarter and was the highest since 75 tonnes in the first quarter of 2001. Miners dehedged 15.1 tonnes in the second quarter last year.

"We don't see any increase in hedging likely and we probably should see dehedges later in the year," Grubb said.