Global gold demand drops 13% in Q1

Is gold losing its sheen globally?

By R Chandrasekaran

CHENNAI: International demand for gold has witnessed a 13 percent drop in volume in the first quarter of the current calendar year. Gold exchange traded funds have also witnessed outflows, signaling money is moving to the equity markets. Significantly, the Central Banks too purchased less gold than the earlier period. Does this mean that gold has lost its sheen and could see further erosion in the quarters to come?

Latest data from World Gold Council indicates that gold demand slipped to 963 tons, representing a 13 percent drop from the year-ago quarter, while in terms of value, the drop was 16 percent to $51 billion during the March quarter. The average price per ounce of gold also skid 3 percent. Sequentially too, the demand for the precious metal plummeted 19 percent in volume and 23 percent in value, whereas price per ounce fell 5 percent.

The drop in the yellow metal would have been much worse but for India and China, which recorded 27 percent and 20 percent growth respectively over the previous year quarter driven by jewelry, bar and coin investment demand. Significantly, for the first time after 2005, the U.S. witnessed a 6 percent increase in demand.

Jewelry sector recorded a 12 percent increase in demand to 551 tons. Of this, China and India accounted for 185 tons and 160 tons respectively indicating 33.6 percent and 29.0 percent respectively of the total demand.

However, demand from technology sector slipped 4 percent year-on-year to 102 tons though the demand crossed 100 tons. Similarly, Central Banks purchase of gold fell 5 percent to 109 tons over the last year though it crossed 100 tons for the seventh straight quarters. In the same way, ETFs recorded a net outflow of 177 tons during the March quarter pushing the ETF sum and total bar and coin demand to below 201 tons. However, this seems to have been offset by strong demand for bar and coin totaling 378 tons, which was 10 percent more than the last year.

On the supply side, one percent higher than the last year was available for the market consumption driven by 4 percent increase in mine production to 688 tons despite recycling slipping 4 percent.

Commenting on the sharp fall of gold price in April, World Gold Council Managing Director Marcus Grubb said, The price drop in April, fuelled by non-physical moves in the market, proved to be the catalyst for a surge of buying that has left many retailers short of stock and refineries introducing waiting lists for deliveries. Putting this into context, sales of bars and coins, jewelry and consumption in the technology sector still make up 81% of the market.” He added, “What these figures show is that even before the events of April, the fundamentals of the gold market remain robust with; growing demand in India and China, central banks consistently adding gold to their reserves and strong buying of investment products such as gold bars and coins.”

Despite the recent fall, WGC believes that long-term appetite for investment in gold remains strong that was demonstrated by the robust demand for bars and coins. The WGC also acknowledged that “gold-backed ETFs, which made up 6% of gold demand in 2012, have seen some holders, primarily in the US, collect profits and move into equities.”

Additionally, looking at the stock markets performance versus gold, it is quite clear that investors are moving their money to the equity markets. For instance, the S&P 500 of the U.S. stock market recorded 16.3 percent gain, while Europe’s FTSE 100 delivered a return of 13.65 percent in 2013. Similarly, Japan’s Nikkei surged 44.65 percent, whereas India’s BSE Sensex could gain 4.22 percent. In contrast, gold has lost approximately 16.7 percent in the current year suggesting lack of support among global community.

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