The World Gold Council (WGC) released their Gold Demand Trends report on May 17th
Global gold demand in Q1/12 was 1,097.6 tonnes (t), down 5% from the high demand levels seen in Q1/11 of
1,150.7t. This decrease was largely to be expected given the introduction of import taxes in India and high gold prices.
Gold demand value however, showed a 16% increase year on year to an estimated US$59.7 billion.
The average price of gold for the quarter was US$1,690.57, 22% higher than the average for Q1/11. Demand for the quarter was underpinned by increased demand in China, continued central bank purchasing and inflows into exchange-traded funds (ETFs).
Highlights from the report :
i) China’s investment and jewellery demand reached 255.2t up 10% on the previous year’s levels.
Investment demand recorded strong growth with a quarterly record of 98.6t, up 13% from Q1/11. Jewellery demand in China
also increased significantly to 156.6t, accounting for 30% of global jewellery demand making China the largest jewellery
market for the third consecutive quarter;
ii) Gold demand in India was affected in Q1/12 by a number of factors; a new tax on gold jewellery, two increases in the import duty for gold and weakness and volatility in the rupee. Jewellery demand fell 19% to 152.0t from Q1/11. Investment demand was down 46% from the previous year at 55.6t. In May, the government withdrew the new tax on jewellery and the market is already responding positively;
iii) Central banks across the globe continued the now established trend of net purchasing with demand in Q1/12 reaching 80.8t. Demand was driven by Eastern Europe with Russia and Kazakhstan adding to their holdings and accounting for a substantial amount of the purchasing. Mexico’s central bank made the largest single purchase of 16.8t. The main driver for this demand by emerging market central banks is the need to diversify
their holdings, and
iv) Q1/12 demand for ETFs and similar products totalled 51.4t (~US$2.8 billion), in contrast to Q1/11, when
the sector witnessed net outflows.
Perhaps more impactful than the WGC’s gold demand and supply stats was the revelation this week by WGC chief executive Aram Shishmanian who said sharp increases in mining costs mean gold will need to reach US$3,000/oz in five years for the industry to stay profitable. Gold producers currently needed a gold price of US$1,300 to survive but faced steep rises in mining costs, along with the cost of dividends and host nation taxes.