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Global Gold Demand Falls 16% In Q2 - WGC

By Kitco News
Thursday August 14, 2014 7:00 AM

(Kitco News) - Total global gold demand in the second quarter fell 16% to 963.8 metric tons, versus 2013’s second quarter, the World Gold Council said Thursday.

Gold demand in the second quarter 2013 was unusually strong because of the 25% price drop during April-June, which stoked a big jump in metal purchases, the council, an industry group that promotes gold,  said in its Gold Demand Trends report covering the second quarter of 2014.

“The second quarter saw a continuation of many of the factors that were in play during Q1: the huge stockpiling of gold that took place in Asian markets during 2013 was still, to some extent, being digested; the election and import restrictions forestalled Indian consumers; bar and coin investors continue to sit on the sidelines; while jewelry consumers in the U.S. and U.K. were further encouraged by improving economic conditions,” the WGC said in the report.

Jewelry demand fell 30% in the second quarter, to 509.6 tons, versus the second quarter 2013. Technology demand fell 3% to 101 tons, and total bar and coin demand was down 56% to 275.3 tons. Exchanged-traded funds saw outflows of 39.9 tons. However, total investment demand rose 4% year-over-year to 235.4 tons. Central bank net purchases were up 28% to 117.8 tons.

Total supply rose 10% to 1,078 tons. Mine output rose 4% to 765.3 tons, with total mine supply up 13% at 815.3 tons. Recycled gold supplies rose 1% to 262.7 tons, and net producer hedging was 50 tons.

Total demand from greater China fell 51% to 207.9 tons and Indian demand fell 39% to 204.1 tons. Middle East demand was down 29% to 58.1 tons, while U.S. demand fell 19% to 38.1 tons, and European demand was down 39% to 57.6 tons.

While the second quarter data for 2014 is down sharply from the same quarter a year ago, the historical trends are intact, said Juan Carlos Artigas, investment research manager at the WGC, in an interview with Kitco News in connection with the release of the research report.

“That’s really the point. We have to understand that last year was exceptional from any way that you look at it,” Artigas said. “It was exceptional in the correction that gold experienced and the outflows that we saw in ETFs (exchange-traded funds). Also exceptional (was) the amount of physical demand (regarding) the bar and coin market and also in jewelry, especially with Asian and Middle Eastern market.”

 Taking those factors into consideration and looking at the historical trends overall, “then you see a pattern in the way that we’ve been discussing all along. It’s a continuation in the demand from various sources, not just one source,” he said.

Jewelry Demand

Jewelry demand remains at 53% of total global demand in the second quarter, the WGC said. While the year-on-year decline was dramatic, the group said jewelry demand seems to “extending the broad upward trend from the base established during the depths of the financial crisis in early 2009.”

Second quarter Chinese demand saw the biggest decline, said the WGC, which was down 45% to 154.7 tons.  Indian jewelry demand fell 18% to 154.5 tons.

Despite the sharp drop in Chinese demand in the second quarter, the WGC said compared to 2012, Chinese demand is up 16% versus the same period.

“Between 2008-2012, H1 (first half) demand increased on average by 16% year-on-year… 2014 demand therefore appears to have reverted towards more of a trend level,” they said.

Chinese demand centers on name-brand purchases for specific reasons, rather than the indiscriminate buying seen in 2013, the report said.

Artigas said it’s not surprising to see the interest in name-brands in China. “It’s a natural trend as emerging markets become wealthier and perhaps more in tune with consumption as we understand in the West, a more capitalistic approach to consumption,” he said.

Looking at second quarter Indian demand from a historical basis, it exceeds the five-year quarterly average, they said. There were “relatively healthy” purchases in Indian surrounding the Akshaya Tritiya festival and wedding-related purchases were steady among high-end retailers, they said.

The mid-May elections kept a lid on high-value purchases in hopes the new government might relax the import restrictions on gold, they said, but without any further relaxation of the restrictions, demand remained “very subdued.”


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Investment

WGC said 2014 appears to be a year of “calm consolidation” versus last year, and they expect this to last, barring unforeseen events.

Institutional and high-net worth individuals have shifted to a more “balanced” view of gold, the group said.

“Investors (are) reportedly being comfortable with current gold holdings and asset allocations more generally. While the washout of 2013 seems to be behind us, with investors showing limited interest in adding substantially to short positions, the impetus to initiate sizable purchases is lacking,” they said.

The front-loaded purchases of bars and coins in the first half of 2013 still weighed on the market, contributing to the continued to lackluster purchases in the second quarter of 2014, they said. Additionally, with gold prices in a tight trading range as the U.S. dollar held mostly steady also left investors with little incentive to purchase physical gold.

Second-quarter ETF outflows were under the year-ago quarter and the first half of 2014 outflows were 42.5 tons, versus the nearly 580 tons seen in the same time last year.

Central bank purchases were 117.8 tons, the 14th straight quarter of net buying, the WGC said. This is a 28% rise over 2013.

Supply

Total gold supplies rose 98.2 tons in the second quarter, and it came mostly from mine supply. Year-to-date supplies are up 5%. The impact of fresh hedging and mine production growth outweighed an 8% decline in recycling activity, they said.

Mine output rose by 4% for a second consecutive quarter, although 2014 is likely to be the peak, WGC said. “Producers have, over recent quarters, implemented a range of operational measures to manage costs and improve efficiency. This trend continued through Q2, but we expect this impact to tail off throughout the remainder of 2014 as the scope for producers to implement further measures recedes,” they said.

Scrap supplies were the smallest since the first half of 2007 and close to the average pre-crisis level, they said, as a steady gold price did not inspire consumers to sell their holdings.

Net producer hedging was 50 tons in the second quarter, and nearly all of it was because of a project-based transaction announced by Russian producer Polyus Gold International. The WGC said it does not see a return to strategic hedging.

“Hedging has been coming down substantially for many, many years... Hedging serves a purpose for some mining companies ... but we do see it more as events developing now a localized issue,” Artigas said.

By Debbie Carlson of Kitco News; 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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