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Gold Demand Jumps 21% In Q1 On Record Investor Interest: WGC

(Kitco News) - It was the culmination of five factors that helped the gold market see its strongest first quarter on record, according to the World Gold Council (WGC).

In its first quarter Gold Demand Trend Report, released Thursday, the WGC said that gold demand totaled 1,289 tonnes, an increase of 21% from the first quarter of 2015.

The biggest factor behind gold’s unprecedented performance from January to March was a resurgence of global investment demand, specifically in exchange-traded funds. The report highlighted that ETFs saw inflows of 363.7 tonnes, more than reversing the total outflows seen in 2014 and 2015.

While the investor-led rally has been almost unparalleled, in an interview with Kitco News, Juan Carlos Artigas, director of investment research at the WGC, said that they aren’t completely surprised.

“I think in some sense there has been a lot of pent-up demand among investors and they have been waiting to get into the gold market since the end of 2015,” he said.

The five factors that led to the gold market’s 16% rally in the first three months of the year, according to Artigas, are: growing instability in equity markets, a weaker U.S. dollar, implementation of unorthodox monetary policy – including the introduction of negative interest rates, – the return of pent-up demand and strong price momentum.

Artigas added that the WGC’s gold outlook for the year remains very constructive as it doesn’t expect to see investment demand dwindle even if some of these factors are resolved.

“I think we have seen a structural shift in the gold market,” he said. “The globalization of markets have increased the frequency and intensity of tail risk events and investors are seeing the benefits of using gold in their portfolio to manage and balance those risks.”

While investor were once again enthusiastically jumping back into the gold market, the WGC noted weakness in other sectors including jewelry and technology demand, as well as central bank reserve purchases.

Looking at regional demand, the two biggest gold-consuming nations saw weaker demand in the first quarter. Indian demand took the biggest hit as it declined 39% to 116.5 tonnes. The drop meant that China was the undisputed leader for consumption, which hit 241.3 tonnes, down 12% compared to the first quarter of 2015.

While consumer demand was weak in Asian markets, Artigas said that it not surprising as that market is price sensitive; however, he added that the WGC expects that this sector will pick up later in the year.

 “It’s undeniable that Asian markets will continue to play an important role in markets. But that is just part of the globalization of the gold market,” he said.

Although central banks continue to add to their official gold reserves, it was at a slightly slower pace compared to 2015. The WGC said that central banks bought 109.4 tonnes of gold from January to March, down 3% from the first quarter of 2015.

Artigas noted that similar to main street investors, the WGC expects central banks, particularly in emerging markets, to continue buying gold and diversify away from negative yielding sovereign bond.

“For central banks, increasing their gold reserves is more compelling because a large portion of sovereign debt has real negative yields,” he said. “

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

 

 

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 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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