India, China gold demand fall sees Q2 sales drop

Global gold demand fell in the second quarter, the World Gold Council (WGC) said on Thursday, as a plunge in jewellery, coin and bar sales from last year’s record levels outweighed lower liquidation of gold-backed exchange-traded funds.

Demand fell 16 per cent in the April to June period to 964 tonnes, with jewellery offtake, the largest single segment of gold demand, down 30 per cent, while coin and bar buying tumbled 56 per cent.

China and India between them accounted for over half of the year-on-year decline in bar and coin demand, the WGC said.

Indian bar and coin investment, which has been curbed by import restrictions this year, fell by two-thirds to less than 50 tonnes, while jewellery sales were down 18 per cent.

In the full year, Indian demand is expected to decline to 850-900 tonnes, said Marcus Grubb, WGC’s managing director for investment, while buying in China, the world’s largest gold market, is seen falling to 900-1,000 tonnes.

Chinese bar and coin demand fell 64 per cent in the second quarter, while jewellery demand was down 45 per cent from last year’s record levels.

Overall Chinese investment demand fell to a near four-year low, with price-sensitive investors put off by a lack of price volatility, the WGC said. A crackdown on bribery and corruption also discouraged purchases of luxury gifts.

However, selling from gold-backed ETFs, which helped balance the market during last year’s buying frenzy, eased off to 39.9 tonnes from 402.2 tonnes in the second quarter of 2013.

Demand for physical gold surged in that period after gold prices slid by nearly a quarter.

The last quarter’s weakness is likely to set the gold market up for a full-year demand drop, albeit by a smaller degree than seen so far this year, Grubb said.

“Overall, we think that with Diwali coming (an auspicious time to buy gold in India), stocking for Chinese New Year, and the bad comparison falling away from the second quarter, you are going to see a better picture develop in these figures later in the year... though it will still be a lower year than last year,” he said.

In a rare bright spot, US jewellery demand grew year-on-year for a fifth consecutive quarter, by 15 per cent to 26.1 tonnes. “Economic recovery in western markets is starting to benefit jewellery demand,” Grubb said.

Central banks also bought gold for a 14th straight quarter, with acquisitions up 28 per cent in the second quarter to nearly 118 tonnes. Emerging markets were the biggest buyers, particularly Russia, Kazakhstan and Tajikistan.   

Mine production rose four per cent in the second quarter, and is set to hit another record high this year after peaking at 3,038.5 tonnes in 2013.

“On the basis that the first half is 5-6 per cent up on last year, even with a flattening trend in the second half, you’ll probably see a small increase this year on 2013,” Grubb said.

“But that is likely to represent peak mine production, given the re-calibration we’ve seen in the industry over the last 18 months.”

Net hedging by producers – selling forward unmined output to lock in prices – reached 50 tonnes in Q2, the highest since the first quarter of 2001. That is due overwhelmingly to a single hedge announced by Polyus Gold in early July.

“It’s our view that that hedge was very much project-based and financing-based, and that you’re not seeing a return to hedging,” Grubb added. “This is against the trend.”

Heavy gold hedging in the 1990s was a major factor keeping prices at lower levels.
 

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