Global gold demand rose 15 percent year-on-year to 1,050 tonnes in the second quarter of this year boosted by considerable and consistent investment demand, according to the World Gold Council’s report released on Thursday.
This took gold demand to 2,335 tonnes in the first half, the second highest first-half for gold on record.
“The global picture for gold is dominated by considerable and continued investment demand driven by the west as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty,” Alistair Hewitt, head of market intelligence at the WGC, said.
Investment demand reached 448 tonnes during the quarter, up almost 2.5-fold year-on-year, as investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability, said the report.
This took investment demand to a record 1,063.9 tonnes in the first half, 16 percent higher than the previous first-half high in 2009.
Gold-backed exchange traded funds (ETFs) and bars and coins performed strongly.
ETFs saw an inflow of 237 tonnes in the second quarter taking first half demand to 580 tonnes.
Bar and coin demand doubled year-on-year to 25 tonnes in the second quarter with demand up in a number of markets including the US. This took bar and coin demand to 485 tonnes in January-June, four percent higher than the first half of last year.
A cause and effect of the growth in investment demand was a 25 percent is the rise in the US dollar gold price in the first half – the strongest first-half price gain since 1980 – which in turn resulted in lacklustre consumer demand, particularly in price sensitive markets, the report said.
Global jewellery demand fell 14 percent year-on-year to 444 tonnes in April-June. Major jewellery consumers China and India saw demand drops of 15 percent to 144 tonnes and 20 percent to 98 tonnes respectively in the second quarter.
India was further impacted by rural incomes remaining under pressure, as well as the government’s decision to increase excise duty, while China faced a challenging quarter against a relatively soft economic backdrop and the implementation of new hallmarking legislation in May.
“Looking ahead, we remain optimistic for the Chinese investment market, particularly inflows into ETFs, as consumers continue to seek a diversified portfolio in the face of economic uncertainty,” Roland Wang, managing director of WGC China, commented.
“[But] we do expect some of the factors which have hindered demand over the course of the first half to persist as we look ahead to the remainder of the year, particularly in the jewellery sector.”
The WGC’s full year demand estimate for China remains unchanged at 850-950 tonnes.
Central bank gold demand decreased 40 percent year-on-year to 77 tonnes in the second quarter, resulting in net purchases 185 tonnes in the first half.
While this quarter was the lowest level of net purchases since second quarter 2011, it comes amid a significant rise in gold prices over the first half which dramatically increased the value of central bank gold holdings to $1.4 trillion, the WGC noted.
Central banks are still expected to be key contributors to global demand, as gold provides diversification from currency reserves and, most notably, the dollar, it added.
Meanwhile, total gold supply increased 10 percent year-on-year to 1,145 tonnes in the second quarter on an increase in recycling owing to rising gold price. Mine production was flat at 787 tonnes during the same period.