First Quarter Gold Demand Shows Important Regional, Sector Strength – WGC

(Kitco News)-The World Gold Council (WGC) continues to see some bright spots in the gold market, despite an overall decline in demand in the first three months of the year.

According to the latest WGC report, looking at first quarter gold trends, world gold demand fell 1% in the first quarter, compared to the first quarter of 2014. The report said that total demand at the start of the year fell to 1,079 tonnes, down from 1,089 tonnes recorded in the previous year.

Juan Carlos Artigas, director of investment research with the WGC, said in an interview with Kitco news that the small decline in gold demand demonstrates that the market is finding some stability, “a stark contract from a few years ago.”

He added that the headline decline is also misleading as it doesn’t recognize important regional and sector trends.

“This contrast between the global picture and the more granular demand data clearly demonstrates the multi-faceted nature of the gold market. The numerous and varying roles that gold plays means it responds to different cues in different ways,” the report said.

Looking at regional demand, India saw a considerable shift in gold consumption as demand increased 15% compared to the first quarter of 2014. The increase in Indian demand came after the government removed import restrictions at the end of the year.

“I think the upward trend that has been re-established in India is reflective of the economic growth that economists are expecting,” said Artigas.

At the same time, in sector trends, investment demand saw an increase of 4% in the first quarter of 2015, compared to the same time period last year. According to the council’s research, global gold-backed exchange traded funds saw positive net inflows of 26 tonnes, the first positive quarter since the fourth quarter of 2012.

“Anecdotally, I can tell you that I have seen a shift in investor sentiment. People haven’t necessarily turned bullish again, but they are certainly not as bearish as they were,” he said.

While there was renewed interest in the yellow metal in India, another important region, China, saw a 7% decline. However, Artigas added that the decline should be taken into perspective as demand was strong in China at the start of 2014, is skewing the year-over-year comparison.

“If you look at the five-year trend, Chinese demand is still very positive,” he said.

Artigas added that gold investment in China has also had to complete with increased investment flows into a red-hot equity market.

Another bright spot for the gold market is the jewelry sector, especially in the U.S., which saw growth of around 4%. The WGC said that U.S. jewelry demand rose year-over-year for the third consecutive increase.

The report also noted that jewelry demand in the United Kingdom also saw a 4% increase in the first quarter. In India, jewelry demand increased 22% year-over-year in the first quarter.

Artigas added that the council expects to see stronger jewelry and technology demand moving forward as the U.S. economy and the global economy start to expand.

Even in an environment of improving economic health, he said that investment demand should also remain positive this year as investors look to balance the risks in their portfolio, eventually turning back to gold as an important diversification tool.

Finally, looking at official gold purchases, central banks remain net buyers of gold and this trend doesn’t look like it will change soon. The WGC said that net central bank purchases at the start of the year was 119.5 tonnes, “virtually unchanged compared to the same period in 2014.”

“There is still a need from emerging market central banks to diversify their reserves away from the U.S. dollar,” he said.

Related Stories:

• Gold’s Relationship With The U.S. Dollar Is Complicated - WGC
  
• WGC: India Beats China As Top Gold Consuming Nation For 2014

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C