Gold loses its lustre as global demand falls to 10-year low amid rapidly declining appetite in China

Demand also drops by 12pc in India, the world’s second largest market for gold jewellery, as the government continues to track unaccounted income

PUBLISHED : Friday, 04 May, 2018, 6:30am
UPDATED : Friday, 04 May, 2018, 6:30am

Global demand for gold fell seven per cent in the first quarter to its lowest in a decade as fears in China eased over the strength of the yuan and rangebound prices leading to a major decline in appetite for bullion as an investment.  

Demand dropped to 973.5 tonnes in the three months to March 31 from the same period last year, the World Gold Council said on Thursday. 

“Weaker investment demand was the main reason for the decline,” the WGC said, which represents the world’s largest gold miners. “Investors lacked a clear signal as gold prices held in a narrow range.”

The investment demand decline was led by a 66 per cent plunge in net inflows of global gold-backed exchange-traded funds to 32.4 tonnes, and a 26 per cent drop in China’s gold bar and coin demand to 78 tonnes. 

The WGC noted that holdings in ETFs in Asia fell by 3.6 tonnes in the first quarter on the back of outflows from China.

It was offset by a net inflow in North America where investors parked their money in gold-linked investments on the back of a weak US dollar and stock market pullbacks.   

Global gold bar and coin demand fell 15 per cent year on year to 254.9 tonnes during the quarter, led by a 26 per cent tumble to 78 tonnes in China. 

“This was largely because investors’ [earlier] worries around the strength of the yuan, which saw them flock to gold to protect their wealth 12 months ago, have eased,” the WGC said. “Since the end of March last year, the yuan has appreciated by around 9 per cent.”  

India’s bar and coin demand also fell 13 per cent to 27.9 tonnes, as the government’s focus on unaccounted income continued to crimp investment demand. 

In terms of physical demand, global gold jewellery consumption fell one per cent year on year to 487.7 tonnes in the first quarter.

A 12 per cent decline in India – the world’s second largest market for gold jewellery – to 87.7 tonnes, was mostly offset by a seven per cent growth in the largest market China, to 187.8 tonnes.  

Gold price traded at around US$1,309 an ounce in early Asia trade on Thursday. It has been on an uptrend since reaching a low of about US$1,134 in December 2016, as the US Federal Reserve has stated and stuck to a gradual path of interest rate increases from very low levels. 

Higher interest rates are negative to the price of gold which gives investors no interest income.