Gold demand fell 12 percent to a four-year low in the second quarter as record exchange-traded product sales and less central bank buying countered surging jewelry, bar and coin purchases, the World Gold Council said.
Global demand slipped to 856.3 metric tons in the quarter, from 974.6 tons a year earlier, the London-based industry group said today in a report. Consumer demand in India, the biggest buyer, jumped 71 percent and China, the second-largest, gained 87 percent, helping to push global bar and coin purchases to a record and jewelry usage to the most since 2008. Central bank buying fell 57 percent from a record a year earlier, it said.
Bullion is heading for its first annual decline in 13 years after some investors lost faith in the metal as a store of value and unprecedented money printing by central banks failed to accelerate inflation. Gold-backed ETP holdings fell 404.4 tons in the second quarter, data compiled by Bloomberg show. The slump in prices to a 34-month low by the end of June boosted physical demand globally, particularly in Asia.
“This was the quarter when you had the big price drop, you saw futures positioning worsen,” Marcus Grubb, managing director of investment research at the council, said yesterday by phone from London. “You've got a very strong quarter from a consumer-demand perspective. Their perception was, and still is, that gold is cheap at this price.”
Gold for immediate delivery slid 21 percent to $1,323.56 an ounce in London this year. It reached $1,180.50 on June 28. Prices averaged $1,417 in the second quarter, down 12 percent from a year earlier and 13 percent less than the first quarter. Last quarter's demand was the least since usage of 834 tons in the second quarter of 2009, the report showed.
The 404.4 tons sold from ETPs in the three months through June was the most since the first product was listed in 2003, data compiled by Bloomberg show. Assets have since slid another 97.4 tons, reaching a three-year low of 1,946.9 tons on Aug. 8.
Global jewelry demand jumped 37 percent to 575.5 tons in the latest quarter, the most since 2008's third quarter, as purchases soared 54 percent in China and 51 percent in India, the report showed. Combined global bar and coin sales advanced 78 percent from a year earlier to an all-time high of 507.6 tons, with demand more than doubling in India and China.
Consumer demand in India rose to 310 tons, beating Chinese consumption that increased to 275.7 tons, the council said. India, last year's biggest buyer, had lagged Chinese consumer demand in the first quarter. Middle East buying gained 37 percent to 67.4 tons and Turkey's consumption jumped 73 percent as jewelers added to inventories at lower prices, according to the report. Global consumer buying climbed 53 percent from a year earlier.
There may be a “dampening” of Indian demand in the next few months due to restrictions on imports, the council said. The nation raised duties this week on shipments for a third time this year to curb a record current-account deficit. Indian and Chinese consumption may each be 900 to 1,000 tons this year, with both countries vying to be the top buyer, Grubb said.
Central banks added 71.1 tons to reserves in the three months through June, compared with 164.5 tons a year earlier, the council said. Additions were the least in two years. Nations from Brazil to Russia added 534.6 tons to reserves last year, the most since 1964, and buying may be 350 tons this year, Grubb said.
Mine output increased about 4 percent to 732.2 tons in the second quarter, the council said. Scrap supply was down 21 percent from a year earlier at 308.3 tons in the quarter, the lowest since 2009's third quarter, it said.
“We've seen a lot of reports of the cost cutting that's now under way in the mining sector around the world, sooner or later that will have an effect on mine production,” Grubb said. “In western markets, as economies are flattening out and getting a little bit better, you're seeing a fall in recycling. In Asia it's really down to the price. Those consumers just don't think this is the right time to recycle gold when the price has dropped 25 to 30 percent.”