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Global Gold Demand Increases 7% In Q1, Remains An Important Portfolio Diversifier

Kitco News

(Kitco News) - The physical gold market found broad-based support from investors and central banks, according to the latest report from the World Gold Council (WGC).

The WGC’s 2019 First Quarter Global Trends Report, said that worldwide gold demand increased to 1,053 tonnes in the first three months of the year, an increase of 7% compared to the first quarter of 2018

A positive trend in the marketplace was global investment demand, which increased to 298.1 tonnes or 3% in the first three months of the year. There was a 49% year-over-year increase in demand for gold-backed exchange-traded funds. The global investment trend was limited with a 1% drop in worldwide bar and coin demand and an 8% drop in Chinese investment demand.

The WGC noted that renewed investor interest in gold comes during a time of recent-historic run in equity markets.

“Despite US stock markets generating their strongest quarterly returns in ten years, investor sentiment in Q1 was underpinned by the shifting stance of the Federal Reserve, which adopted a more neutral monetary policy approach,” the WGC said in its report. “This more dovish outlook should underpin regional demand for the rest of 2019, although continued strength in the stock market would be a headwind.”

Although investors might be frustrated with the price of gold within an environment of growing physical demand, Juan Carlos Artigas, director of investment research at the World Gold Council, said in a telephone interview with Kitco News that the report’s findings continue to show strategic reasons to hold gold as a vital portfolio diversification tool.

Although U.S. equity markets are holding at all-time highs, which could limit interest in gold in the near-term, Artigas said that growing uncertainty provides a significant opportunity for the precious metal.

“While conditions look okay today, there are some people out there who are concerned about economic growth,” he said. “Nobody knows if equities are going to go higher. This is the time you should start building a fully diversified portfolio.”

First quarter gold demand also showed a diverging reality between American and European investors. American ETF demand was a lot more volatile in the first quarter compared to European demand. Artigas said that Europe represents a significant market within the global landscape.

Describing European demand, the WGC report said: “Geopolitics remains a key driver of investment in the region, with investors pricing gold’s safe-haven status amid the background of low/negative yields, financial market volatility and geopolitical worries.”

Central Banks Continue To Dominate The Gold Market

Although global investment demand was relatively tame in the first quarter, central banks were on a buying spree with global official gold purchase totaling 145.5 tonnes in the first quarter, a 68% increase compared to the first quarter of 2018. Central banks bought gold at the fastest pace since the quarter performance since 2013, the WGC said.

“A diverse breadth of central banks continued to buy gold: nine central banks added more than a tonne to their reserves in Q1,” the WGC said.

Strong first-quarter gold demand among central banks continues the trend that was established last year, which saw official sector gold demand hit its highest level in 50 years. The WGC said that central banks will continue to add to their gold reserves.

“Economic uncertainty caused by trade tensions, sluggish growth and a low/negative interest rate environment continued to weigh heavy on reserve managers’ minds. Moreover, geopolitics still cause consternation. In the face of these challenges, central banks continued to accumulate gold,” the WGC said.

Global Jewelry Demand Remains Solid

In other important markets, the WGC said that global jewelry demand increased to 530.30 in the first quarter, up 1% from the first quarter of last year. The big surprise for the jewelry market was a modest return of India consumers. Indian demand increased 5% to 125.4 tonnes, compared to 119.2 tones consumed a year ago.

“So far, the market has been largely unaffected by the restrictions on cash movement that came into force mid-March,” the WGC said.

However, jewelry demand in the world’s biggest gold market, China declined by 2% to 184 tonnes.

“The market faced a few headwinds: gold prices were relatively volatile during Q1 and consumers remained wary of the slowdown in the domestic economy, particularly against the background of the international trade conflict,” the WGC said.

U.S. jewelry demand saw its ninth consecutive quarter of growth, although the pace was slower compared to other quarters.

“The prolonged government shutdown hit demand in January, as demonstrated by a drop in gold jewelry imports that month,” the WGC said.

Finally, tech-sector demand for gold dropped to 79.3 tonnes, a decline of 3% compared to last year.

“This was the second consecutive quarter of falling demand, a direct consequence of a weaker electronics sector and the ongoing trade dispute between China and the US,” the WGC said.

Gold Mine Production See Strong Start In First Quarter

While gold demand picked up modestly in the first quarter, the supply of the precious metal was unchanged at 1,150 tonnes. Mine production increased to 852.4 tonnes, up 1% from last year and representing a record for first quarter production.

“Given the seasonality in gold production – where output in the first quarter is typically the weakest – this represents a strong start to the year,” the WGC said.

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