Inflows into Exchange Traded Funds(ETFs) totalled 109 t which, although solid, were nonetheless a fraction of last year’s near-record inflows.
Slower central bank demand also contributed to the weakness. Bar and coin investment, however, was healthy, at 290 t, an increase of 9% year-on-year, while demand firmed slightly in both the jewellery and technology sectors.
Inflows into gold-backed ETFs of 109 t were largely concentrated in Europe. Although inflows were just one-third of the extraordinary levels seen in Q1, 2016, demand was firm. European-listed products were the most popular, due to continued political fragility in the region.
Investment in gold bars and coins grew by 9%, to 290 t year-on-year. Chinese investors were central to the increase, attracted by the momentum behind the price rise ahead of the seasonally-important Chinese New Year.
First quarter jewellery demand was 481 t, marginally up on Q1, 2016. Gains in India were the main reason for the slight year-on-year increase. But demand remains relatively weak in an historical context, 18% below the five year quarterly average.
Indian consumers enjoyed a period of relative stability in the domestic market, lifting demand 15% year-on-year to 124 t. Continued remonetisation by the RBI buoyed consumer sentiment, which encouraged demand ahead of the auspicious wedding season, albeit from a low base.
Central bank demand continued to slow, with 76 t added to reserves. This was down 27% on Q1, 2016. China’s purchasing programme was on pause during the quarter as its foreign exchange reserves remained under pressure.
“Demand is down year-on-year, but that is largely because Q1 last year was exceptionally high. Although we did not see the record-breaking surges in ETF inflows experienced in Q1, 2016, we have seen good inflows nonetheless this quarter, with strong interest from European investors ahead of the Dutch and French elections,” says Alistair Hewitt, Head of Market Intelligence at the World Gold Council.
“Retail investment demand is strong too, up 9% year-on-year with demand worth over US$11 billion in Q1. China led the way with bar and coin demand surging 30%, breaching 100 t for only the fourth time on record, fuelled by concerns over potential currency weakness and a frothy property market.
“Elsewhere the picture was less rosy: central bank demand was down and jewellery demand is still in the doldrums, although there are signs of improvement, especially from India where the gradual remonetisation of the economy is supporting the jewellery market.”
Total supply reached 1 032 t this quarter, a fall of 12% compared with the first quarter of 2016. This was predominantly a result of a 21% fall in recycling to 283 t and continued net de-hedging of a further 15 t by producers.
The drop in recycling demonstrates a return to more normal levels, after sharp price movements drove exceptional levels in Q1, 2016. Mine production of 764 t was little changed from Q1, 2016 (768 t), and in line with the expectation that production will remain broadly steady before tailing off.
The key findings included in the Gold Demand Trends Q1, 2017 report are as follows:
- Overall demand was 1 034 t, a fall of 18% compared with 1 262 t in Q1, 2016;
- Total consumer demand increased by 4% to 771 t from 739 t in Q1, 2016;
- Total investment demand fell 34% to 399 t this quarter compared with 607 t last year, as ETF inflows resumed at less exceptional levels;
- Global jewellery demand was up 1% at 481 t, compared with 474 t in Q1, 2016;
- Central bank demand reached 76 t this quarter, a fall of 27% from 104 t in Q1, 2016;
- Demand in the technology sector increased by 3% year-on-year, to 78 t, compared with 76 t during Q1, 2016;
- Total supply fell by 12% to 1 032 t this quarter from 1 175 t during Q1, 2016; and
- Recycling decreased by 21% to 283 t during the first quarter, from 360 t during Q1 last year.