The gold market development organisation the World Gold Council reported in its latest ‘Gold Demand Trends’ report that global gold demand reached 2 335 t in the first half of 2016 with investment reaching record half year levels, 16% higher than the previous record in the first half of 2009.
The second quarter of 2016 continued in the same vein as the first quarter this year with overall gold demand growing to 1 050 t, up 15% from the second quarter 2015 figure of 910 t, driven by considerable and consistent investment demand.
The World Gold Council reports that investment demand reached 448 t as investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability.
Exchange-traded funds (ETFs) had a stellar first half of the year at almost 580 t due to the additional inflows in of 237 t in the second quarter.
Bar and coin demand was also up in a number of markets in the period under review, including in the USA at 25 t (up 101%), leading to a total of first half bar and coin investment of 485 t, 4% higher than the first half of 2016.
A cause and effect of the growth in investment demand was a 25% rise in the US dollar gold price – the strongest first half price gain since 1980.
This contributed to lacklustre consumer purchasing, particularly in price sensitive markets. While there were increases for jewellery demand in the USA (up 1%) and Iran (up 10%), the customary powerhouses of China and India saw drops in the second quarter of 15% to 144 t and 20% to 98 t, respectively.
India was further impacted by rural incomes remaining under pressure, as well as the government’s decision to increase excise duty, while China faced a challenging quarter against a relatively soft economic backdrop and the implementation of new hallmarking legislation in May.
Meanwhile, Central bank demand decreased 40% (77 t) in the second quarter of 2016 , compared to 127 t in the same period last year, resulting in net purchases for the first half now totalling 185 t.
While this quarter was the lowest level of net purchases since the second quarter of 2011, it comes amid a significant rise in gold prices over the first half, dramatically increasing the value of central bank gold holdings to US$1.4 trillion.
Central banks are still expected to be key contributors to global demand, as gold provides diversification from currency reserves and most notably, the dollar.
Alistair Hewitt, head of market intelligence at the World Gold Council, says that the strength of this quarter’s demand means that the first half of 2016 has been the second highest for gold on record, weighing in at 2 335 t.
“The global picture for gold is dominated by considerable and continued investment demand driven by the West as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty,” says Hewitt.
The foundations for this demand are strong and diverse, drawing on a broad spectrum of investors accessing gold via a range of products, with gold-backed ETFs and bars and coins performing particularly strongly.
“But the global gold market is, and has always been, based on balance: so whilst investment is currently the largest component of demand, we see a gradual return for the jewellery market in the second half of 2016,” Hewitt comments.
Total supply for the second quarter of 2016 saw an increase of 10% to 1 145 t compared to 1 042 t in the second quarter of 2015.
The World Gold Council report notes that the primary driver of this increase was recycling, which saw a significant rise of 23%, as consumers capitalised on the rising gold price, leading to first half recycled gold supply of 687 t, 10% higher than the 626 t seen in the first half of 2015.
Mine production remained broadly flat at 787 t (790 t in the second quarter of 2015), while gold producers added 30 t to the hedgebook.