FOCUS – Market uncertainty, monetary policies to support gold demand – WGC

Ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand for gold, said the World Gold Council in a first quarter demand report on Thursday.

“This, combined with an expected recovery in India, should see gold demand remain healthy over the course of 2016,” said Alistair Hewitt, head of market intelligence at WGC.

Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant drive of gold demand, helping to push prices up 17 percent over the course of the quarter as ETF inflows swelled, said Hewitt.

Global gold demand rose 21 percent year-on-year to 1,289.8 tonnes in the first quarter of this year, making it the second largest quarter on record for demand, according to WGC.

Total global investment demand jumped 122 percent year-on-year to 617.6 tonnes in the first quarter which sparked a 17 percent rally in gold price during the period, WGC said.

Under investment demand, inflows into ETFs totalled 363.7 tonnes in the first quarter – the highest quarterly level since first quarter 2009 – compared to 25.6 tonnes in first quarter 2015.

Gold found favour as a risk diversifier due to the negative interest rate environment in Europe and Japan, combined with uncertainty over the Chinese economy, anticipation of slower interest rate rises in the US and global stock market turmoil.

Central banks also remained strong buyers, purchasing 109.4 tonnes in January-March, albeit a three percent decline from the same period last year. First quarter 2016 is the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar.

Conversely, jewellery demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42-day strike by jewellers in India.

Global demand for jewellery was down 19 percent year-on-year to 481.9 tonnes in the first quarter, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases.

“But we believe Indian demand has simply been postposed, with buying likely to increase for Akshaya Tritiya and the wedding season,” Hewitt said.

Total gold jewellery demand in China contracted 17 percent year-on-year to 179.4 tonnes in the first quarter, but growth was positive for investment demand -  driven by bar and coin demand – and gold-backed ETFs, said Roland Wang, managing director of WGC China.

“The People’s Bank of China also remained one of the biggest gold buyers in first quarter 2016 as it continued to diversify its reserve holdings despite higher prices,” Wang noted.

Meanwhile, total global gold supply rose five percent year-on-year to 1,135 tonnes, while mine supply increased eight percent year-on-year to 774 tonnes in January-March.