Gold Demand Trends – Report From The World Gold Council

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World Gold Council Q1

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.

Gold In Demand – Blame China

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Image via Wikipedia

Caveat :you may think the World Gold Council is biased –

Data from the World Gold Council (WGC) on Thursday revealed record investment demand lifted global gold demand to an all-time high in 2011, with China and India generating 49% of demand. Those two countries also accounted for 55% of global jewellery demand for gold last year.

        “It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” said Marcus Grubb, WGC’s Managing Director for Investment.

Grubb also emphasized, “What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity.”

 The Financial Times reported that WGC believes China’s central bank made significant gold purchases in the final months of 2011, contributing to a surge in the country’s imports. WGC told the FT that buying by the People’s Bank of China (PBOC) could explain a large discrepancy between Chinese imports and the WGC’s estimates of consumer demand in the country. China’s imports soared to 227 tonnes in the last three months of 2011, while mine production in China came in at 100 tonnes in the quarter, implying total supply of at about 330 tonnes. This number compares to demand of 191 tonnes for gold jewellery, bars and coins. Was the difference (~139 tonnes or 4.47 million ounces OR @$1,750/oz gold = $7.7 billion!) eaten up by China’s central bank?

For comparison purposes, one broker highlighted that last year, all the central banks of the world combined bought gold at a reported rate of only 110 tonnes per quarter.

Twitter @jack25bc

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