Western gold jewelry buyers come roaring back

The latest World Gold Council study shows global gold demand continues to decline from 2013 levels, sliding 16% during the second quarter.

The industry body says global gold demand reached 964 tonnes during Q2 as both consumers and investors exited the market.

Marcus Grubb, Managing Director of Investment Strategy at the World Gold Council said: “Jewellery consumers continued to digest the exceptional purchases of 2013 and investors also rebalanced, pulling back from the extremes we saw last year. Overall the gold market is stabilising following the extraordinary conditions we saw in 2013.”

In value terms, Q2 gold demand totalled $40 billion, down 24% thanks to an average gold price of $1 288/oz during the period – down 9% on the average price during the second quarter of 2013.

Global jewellery demand, which represents more than half of total global demand, was down 30% year-on-year to 510t during what is traditionally a quieter quarter for jewellery according to the WGC.

India and China remain significant drivers of the global jewellery market, purchasing 154t and 143t respectively.

Indian jewellery buying was also affected by high value purchases being restricted in the run up to the election and the continued impact of import restrictions on gold.

On the positive side “there were continued signs of recovery in some Western markets as jewellery demand in the US rose by 15% to 26t and the UK by 21% to 4t as consumer confidence continued to grow in line with the economy and yellow gold came back into fashion.”

Central banks bought 118t of gold in Q2 2014, an increase of 28% compared to the same period last year.

It was the 14th consecutive quarter in which central banks were net purchasers of gold driven by a number of factors, including a continued diversification away from the US dollar and the backdrop of ongoing geopolitical tensions in Iraq and Ukraine.

After a disastrous 2013 investment demand is also picking up: Total investment demand (investment in bars and coins combined with exchange-traded funds (ETF) investment) was up 4% to 235t.

Investment in bars and coins stood at 275t for Q2 2014, a fall of 56%, following unprecedented levels of buying during the same period last year.

In Q2 2014, many investors were uncertain about the direction and momentum of the gold price, while traders in price sensitive markets were far less active due to low volatility.

The quarter did see an improvement in investor sentiment towards ETFs compared to last year. Outflows stood at 40t for the quarter, a tenth of the redemptions seen in the same quarter a year ago. The bulk of these outflows occurred at the beginning of the quarter, turning to marginal inflows by the end.

The key findings from the report are as follows:

• Jewellery remains the biggest component of gold demand, representing more than half of all demand at 510t. Although it is down 30% year on year, jewellery has been extending the broad upward trend from the base established in early 2009.
• Central banks increased purchasing by 28% to 118t compared with the same period last year, as they continued to use gold as a hedge against risk and diversify away from the US dollar.
• Total investment demand (combined investment in bars and coins and ETFs) was up 4% to 235t. However, there was a 56% decrease in bar and coin demand from 628t in Q2 2013 to 275t in Q2 2014 following unprecedented levels of demand last year. ETF outflows were 40t, a tenth of the outflows seen in the same period last year
• Taken together, these factors show that gold demand is reverting to  long term trends after an extraordinary 2013.
• Total supply for the quarter was up 10% year on year solely due to the growth in mine supply.
• H1 recycling is the lowest since 2007 although the figures for Q2 2014 are up 1% to 263t compared to last year – a relatively low figure compared to the historical average.

Gold demand and supply statistics for Q2 2014

• Gold demand for Q2 2014 was 964t, down 16% year on year from 1,148t
• Central bank purchases rose 28% year on year, to 118t from 92t
• Total bar and coin demand fell by 56% year on year, to 275t from 628t
• ETF outflows were 40t, a tenth of the outflows seen in the same period last year
• Total jewellery demand fell by 30% year on year, to 510t from 727t
• Technology demand came in at 101t, down 3% versus the same period last year
• Total supply increased by 10% to 1,078t. We expect supply to peak in 2014 and plateau over the next 4-6 quarters.