Global gold demand soars as inflows to gold ETFs hit seven-year high

Demand for gold jewellery falls 19 per cent

PUBLISHED : Thursday, 12 May, 2016, 6:18pm
UPDATED : Thursday, 12 May, 2016, 6:18pm

Global gold demand jumped 21 per cent year on year in the first quarter the year as inflows to gold exchange traded funds (ETFs) hit a seven-year high amid a rise in risk-averse sentiment, a report by the World Gold Council said on Thursday.

The worldwide demand for gold reached 1,290 tonnes in the first three months of the year, mainly driven by a 122 per cent year-on-year surge in investment demand – for ETFs and gold bars or coins – to 618 tonnes, the report said.

Spurred on by the uncertainty raised by negative interest rates [in Europe and Japan], the investment sector was the dominant driver
Alistair Hewitt, World Gold Council

Inflows to gold ETFs totalled 364 tonnes, the most in a quarter since the beginning of 2009, compared with just 25.6 tonnes in the first quarter of last year. The inflows more than reversed the cumulative outflows of the past two years, the report said.

“Spurred on by the uncertainty raised by negative interest rates [in Europe and Japan], the investment sector was the dominant driver , helping to push prices up 17 per cent over the course of the quarter,” Alistair Hewitt, the council’s head of market intelligence, said. The supply of gold, meanwhile, rose only 5 per cent.

Beijing’s devaluation of the yuan in August fuelled fears over mainland China’s economic health and the potential impact on global growth. The pace of US interest rate rises was now widely expected to slow, also undermining confidence in traditional asset classes, the report said.

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The report said the inflows of gold-backed ETFs was “largely a Western phenomenon”. Chinese gold-backed ETFs on aggregate attracted 11.1 tonnes of inflows in the first quarter, more than double the amount in the first quarter of last year.

The buying trend continued into April, particularly in Europe where investors were plagued by lingering fears that Britain might vote to leave the European Union next month, the report said.

Central banks remained strong buyers of gold, purchasing 109 tonnes in the first quarter, which was the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar.

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But overall demand for gold jewellery fell 19 per cent, dragged down by China and India as consumers’ confidence was hurt by the mainland’s weakening economy and a 42-day strike by jewellers in India.

“We anticipate that ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand over the course of 2016,” Hewitt said.