Global demand falls 12% in Q2.
By R. Chandrasekaran
CHENNAI: Gold demand has recorded a 12.14 percent drop in the second quarter globally despite strong demand from the two big Asian countries, India and China, topping the gold buyers’ list. Obviously, the Indian government is worried over the unfavorable impact of a surge in gold import on the Indian currency and hiked import duty recently.
However, the central bank of various nations has slowed its purchase of gold in the second quarter. But for the two Asian nations, demand for the yellow metal would have been worse.
India’s gold consumption surged 71.18 percent to 310 tons from 181.1 tons in the year-ago quarter, while China’s consumption of gold surged 87 percent to 275.7 tons from 147.4 tons, a data from World Gold Council (WGC) indicated.
The lust for gold has waned after the U.S. Federal Reserve Chairman Ben Bernanke indicated a potential monthly bond tapering program of $85 billion towards the end of May and the yield for bonds started witnessing uptick in the U.S. Moreover, the rating agency Standard & Poor’s has also upgraded the sovereign credit rating on the U.S. with less chances of a downgrade threat at least in the next two years.
This has resulted in gold demand dropping 12 percent to 856.3 tons globally from 974.6 tons over the last year quarter. Sequentially too, the worldwide demand for gold fell 13.7 percent from 992.4 tons recorded in the first quarter of the current calendar year.
Of the total gold demand, India’s gold purchase represented 36.2 percent, whereas China’s buying accounted for 32.2 percent. Together, they represented 68.4 percent of the total gold consumption in the second quarter. In contrast, India and China’s gold purchase represented only 18.6 percent and 15.1 percent respectively in the last year second quarter’s total gold consumption.
The demand for bar and coins were very strong. On a year-on-year basis, bar and coins consumption surged 78 percent to 507.6 tons, whereas on a sequentially basis, it jumped 25 percent.
The Central Bank of various countries have also started slowing down their gold purchase as it plummeted 57 percent year-over-year and 35 percent over the first quarter.
Gold price also dipped 12 percent year-over-year to $1414.8 per ounce, whereas it has dropped 13.3 percent sequentially, according to WGC. This suggests that both India and China wanted to capitalize the lower prices. There was a record investment in gold bars and coins, which was countered by significant outflows from the ETFs since the investors in the West reacted favorably to the positive outlook of the U.S. economy and a possible bond tapering.
Given the concern of India over the significant rise in import of gold, the government has tightened its screws on gold buying on Wednesday thus banning imports of medallions, coins and asking domestic buyers to pay cash. This comes on the heels of the government hiking import duty to 10 percent on Tuesday.
To contact the author, email to rchandrasekaran@americanbazaaronline.com