Global Gold Demand Falls 4% In Q2; Long-Term Trend Remains Positive
(Kitco News) - Gold demand in the first half of the year dropped to its lowest level in 9 years while the global market declined 4% in the second quarter, according to the latest report from the World Gold Council.
Thursday, in its latest quarterly Gold Demand Trends report, the WGC said that global gold demand dropped to 964.3 tonnes, down from 1,008 tonnes consumed in the second quarter of 2017. For the first half of the year, global gold demand totaled 1,959 tonnes, a drop of 6% from the first half of last year.
“Slower inflows into gold-backed exchange-traded funds (ETFs) created a weak comparison against the highs of last year, contributing to the lowest H1 demand since 2009,” the analysts at the WGC said in the report.
The report comes as sentiment in the gold market is near historic levels. Many analysts have noted that interest in gold, as seen in Google search trends, fell to its lowest level in over a decade during the second quarter.
While the North American market has seen lackluster interest in the yellow metal, Juan Carlos, Director of Investment Research at the World Gold Council, said in an interview with Kitco News that investors should not entirely dismiss the yellow metal.
“Our research shows that there is still plenty of investor demand in gold globally,” he said.
He noted that European investment demand was the most significant driver in gold-backed ETF markets during the second quarter as North American interest dried up.
At the same time, the world’s largest gold-consuming nation saw a pickup in demand. The WGC said that Chinese physical gold demand increased 11% to 69.5 tonnes. Artigas said that it’s not surprising that Chinese gold demand was on the rise as the government started to devalue its currency to promote economic growth. The Chinese yuan fell 5% against the U.S. dollar in the second quarter, the WGC said.
“We see Chinese investors and consumers using gold to preserve capital,” he said.
Myth-busting: Strong Economic Growth Is Good For Gold Market
Many economists have shunned gold as a safe-haven asset as momentum in the U.S. economy continues to surge ahead; however, Artigas said that economic growth is a positive factor for the gold market.
“Positive economic growth is not a negative for gold,” he said. “This is the most important factor to support long-term growth in the gold market. Positive economic growth will boost physical demand that will continue to support the market.”
Artigas noted that in a healthy economy, consumers buy more gold jewelry, investors have more capital to invest in the market and technology demand grows as people buy more smartphone and other high-end electronics.
Those themes show up in the WGC’s latest research. U.S. jewelry demand in the second quarter increased 5% with the first half of the year seeing demand at its highest level since the first half of 2008.
“Demand benefited from the positive domestic economic environment: rising wages, lower taxes boosting household incomes, unemployment at historic lows and heightened consumer confidence,” the WGC said.
At the same time, tech-sector gold demand increased 2% to 83.3 tonnes in the second quarter, its seventh consecutive quarter of growth. Artigas said that the council thinks this is just the start of a long-term trend in the tech sector.
“Because of its properties, gold is an integral component in many different technologies,” he said. “The more technology we develop, from autonomous cars to new phones and computers, the higher demand we will see for gold.”
At This Point Any Catalyst Will Push Gold Higher
Although there are significant pillars in the gold market to promote long-term growth, Artigas admitted that the only piece that is missing is the investor interest. He added that this is the sector that is needed to drive the yellow metal in the short-term, breathing much needed new life in the marketplace.
However, he noted that sentiment in the investment sector could quickly change, especially as the U.S. economy faces growing uncertainty.
In particular, Artigas said that the flattening yield curve, which is close to inverting, is signaling a growing rise for the U.S. economy. The U.S. economy has fallen into a recession the last seven times the yield curve inverted when 2-year bond yields rose above 10-year bond yields.
Currently, the spread between 2-year bonds and 10-year bonds is 32 basis points.
“I don’t think it will take much for investors to return to gold,” he said. “At this point, anything can be the catalyst. In the past, many investors have used these conditions as an attractive entry into the market.”
Growing Gold Supply Eh
While demand was down in the second quarter, the WGC reported that mine supply increased to 835.5 tonnes, up 3% from the second quarter of 2017.
“This strength in mine output is mainly attributable to the continued ramp-up of several projects, as well as further capital expenditure from gold miners,” the WGC said.
In mining actvity, Canada saw the most significant growth with output increasing 21% from the same time last year. The U.S. saw the most significant reduction in mining activity falling 8% in the second quarter compared to 2017.