A look at what will happen next in the world economies
Saturday, October 31, 2015
Global Gold Demand Drops 12% in Second Quarter
Like oil, gold is hitting a 6 year low and the US currency which was predicted to demise has not. Aivars Lode
Gold has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011
By Ese Erheriene
Global demand for gold plummeted 12% to a six-year low in the second quarter, as vital buyers in Asia lost their appetite for the metal, the World Gold Council said Thursday.
Demand for the precious metal weighed in at 914.9 tons between March and June of this year, down from 1,038 tons during the same period in 2014, according to the industry body’s latest Gold Demand Trends report.
The price of gold for immediate delivery has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011, falling more than 40% as production outstripped demand and inflation stayed mainly low, taking away a usual prop for the precious metal, among other factors. Gold prices ended the quarter down 3%.
“This has actually been a challenging quarter; you’ve [the] evidence in the data,” said Alistair Hewitt, head of market intelligence at the London-based World Gold Council.
The decline came as global demand for jewelry fell by 14% in the second quarter to 513.5 tons, compared with 594.5 tons the year before. Jewelry makes up about 60% of global gold consumption.
A rise in equity purchases and expectations of a rate increase by the Federal Reserve sapped global demand for gold, an asset that doesn’t pay interest and struggles to compete with other assets that offer a return and are deemed safe, like U.S. Treasury bonds.
Global investment demand was down 11% year-over-year, to 178.5 tons from 199.9 tons in the same quarter in 2014. However, fears of a Greek exit from the eurozone managed to support bar and coin demand in the Eurozone countries in the second quarter, with demand up 19% to 46.5 tons from 39.2 tons last year.
Global gold supply declined 5% year-over-year to 1,032.6 tons. This was driven by a drop in gold recycling to 251.1 tons, an eight-year low.
India and China, which together account for roughly half of global gold consumption, both saw demand slide.
The biggest loser was India, where lower rural incomes due to difficult weather conditions over the quarter and fewer auspicious days on which to hold celebratory events in the third quarter dented demand. Planning for these events is usually done a couple of months prior, hence the effect being felt between March and June.
Total gold demand in India slid 25% to 154.5 tons in the second quarter, from 204.9 tons last year. Jewelry purchases were 118 tons in the second quarter, down 23% from 152.6 tons a year earlier.
Meanwhile in China, the attraction of the stock market bubble meant investors piled their money into equities instead of gold. Total gold consumption in China fell 3% to 216.5 tons in the second quarter, compared with 224.1 tons over the same period in 2014. Demand for jewelry fell 5% to 174.4 tons in the second quarter, from 184.6 tons over the same period last year.
In the second half of the year, demand is expected to pick up on the back of gold’s sharp price drop in July, which should attract bargain-hunting by buyers in Asia. Prices shed almost 7% of their value last month. Gold is priced in dollars and so it becomes more expensive for buyers who use weaker currencies to fund their precious metal purchases.
Certainly, the start of wedding and festival season in India, the return to gold by investors burned by the stock market in China and the recent devaluation of the yuan by the Chinese central bank should bolster demand.
“What we’ve seen ... with the devaluation will continue to support the investment case for gold. We often see people turning towards gold when threatened by weak currencies and I think that’s clearly the situation we’ve seen in China over the past few days,” said Mr. Hewitt.
According to the World Gold Council, full-year gold demand is forecast at between 4,200 tons and 4,300 tons. For India and China, the 2015 outlook remains the same and both are seen to weigh in between 900 to 1,000 tons.
Spot gold was trading up 1.4% at $1,124.48 troy ounces on the London spot market, a three-week high.