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World Gold Council: First-Quarter Demand Holds Steady With Year-Ago Levels At 1,074.5 Tons

By Debbie Carlson of Kitco News
Tuesday May 20, 2014 12:01 AM

(Kitco News) - Gold demand in the first quarter was 1,074.5 metric tons, on par with bullion demand the first quarter of last year, the World Gold Council said Tuesday.

Compared demand in the first quarter of 2013 of 1,077.2 tons, gold demand in the first quarter of this year was down 0.25%. The WGC said jewelry demand rose 3% because of lower prices versus the first quarter of last year, along with season factors such as Chinese New Year. China saw record first-quarter jewelry demand, the group said.

Investment demand in the first quarter was 282.3 tons in the first quarter, down 2% from the 288.1 tons bought in the first quarter of 2013. The investment demand breakdown shows that exchange-traded fund flows were essentially zero, while bar and coin demand fell 39% from year ago levels, down to 282.5 tons.

Total supply rose 1% to 1,048.5 tons, which includes both mine supply and recycling.
Trends Continue

Jewelry demand was 570.7 tons, the largest first-quarter increase since 2005.

Juan Carlos Artigas, head of investment research at the World Gold Council, told Kitco News the trends continue to be the same in the gold market, such as stronger jewelry demand, particularly in China as demand for luxury goods remains high.

China’s demand for jewelry was up 10%, at 203.2 tons, in the first quarter, a record. India’s jewelry demand was 145.6 tons, down 9%, a reflection of the duties placed on gold there.

Chinese consumers generated the largest year-on-year volume increases in jewelry demand. The WGC said Chinese New Year and Valentine’s Day came close together, which spurred sales during the quarter.  “Following its regular seasonal pattern for first quarter, demand tailed off quite suddenly once the festive occasions were over, with the concurrent rising gold price also acting as a brake on demand,” the WGC said.

Jewelry demand was firm across the Middle East as a whole, the WGC said, and jewelry demand also rose in the U.S. and U.K.

Jewelry demand fell 12% in Turkey as currency depreciation meant higher local gold prices. Additionally, political controversy during election time may have hurt gold demand, they said. Russian demand fell 2% on the back of ruble depreciation and geopolitical tensions.

Investment Demand

Investment demand fell 2% in the first quarter of 2014 versus 2013, but came mostly because of a sharp drop in the purchases of bars and coins.
“Considering how strong bar and coin demand was last year I don’t think it should come as a surprise,” Artigas said.

Physical buyers likely reacted to the pullback in gold prices in the second and third quarter to take advantage of the discount and buy bars and coins, he said.

“You still see demand, it’s still there. Many of the investors decided to purchase at what they saw as discount prices in 2013. (They) are comfortable with the purchases they made and they are going to wait and see what is happening,” he said.

The WGC noted that retail investors in more price-sensitive nations were responsible for the drop in bar and coin demand. Together, China, India, Thailand and Turkey saw a 176 ton decline in bar and coin demand.

China saw a 55% drop in total bar and coin demand in the first quarter of 2014 versus 2013, with 60 tons bought in the first quarter of this year.

Artigas said outflows from European ETFs were offset by some inflows from U.S. ETFs. “The thing to take from here is, ETFs, particularly in the U.S., are starting to rebound, that’s an important note,” he said, noting that total outflows were less than one ton.

Central Banks

Central banks bought a net 122.3 tons in the first quarter, down from 130.8 tons bought a year ago, but “within the range of buying that has been in place for the last three years,” WGC said.

The bulk of the purchases were by the Bank of Iraq, which bought 36 tons in the first quarter, the WGC noted.

Artigas said the story of central banks is one of European central banks not selling old and emerging market central banks diversifying their foreign reserves to include gold.

Ahead of the WGC report’s release, European central banks agreed to the fourth installment of the Central Bank Gold Agreement, which caps how much gold these banks can sell at any given time.

“The European central banks don’t have appetite to be selling…. We don’t expect that trend to change…. We expect emerging market central banks to continue their purchases,” he said.

Gold used in technology fell 4% in the first quarter as costs pressured fuelled substitution to cheaper alternatives like silver, copper and aluminum, the WGC said.

Supply

Mine supply grew 6% in the first quarter versus last year, as new operations came on line, whether it was miners ramping up or coming on stream, the WGC said.

The first quarter “saw a continuation of the trend established last year among mining companies, of taking steps to contain costs and increase operational efficiencies, which should feed through to continued growth in mine production in coming quarters,” they said.

Canada led the world in increased mine output, with continued growth at Detour Lake, Canadian Malartic and Young-Davidson mines.

Hedging was very small, only six tons in the first quarter, versus 10.6 tons a year ago. The council expects hedging to remain marginal, likely only done by some producers to implement project-financing-related positions.

Gold recycling fell 13% to 322 tons. This figure is below the five-year average of 400 tons and at the lower end of the 300 tons to 460 tons-range that has largely defined recycling since 2008. WGC said less recycling in industrialized countries led to the decline, as economies improve there.

“Recycling has been falling since 2009… when it reached its peak,” Artigas said.

There are two main factors for this, he said. “One is essentially price. When price increases there is more of a likelihood of recycling, but when the price falls, people tend to recycle less. That’s one factor. It’s important to consider the other side of this, economic growth.  Economic growth (keeps) people from recycling because when you’re recycling you’re essentially selling your savings. People don’t do that if they don’t have to. In spite of an increase in price, you’re having an increase in economic growth, especially in emerging markets, where most of the recycling is happening. So people aren’t pushed to sell.”

 

By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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