China, Central Banks and ETFs Underpin Demand For Gold

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May 17, 2012 12:28pm NYSE:GLD NYSE:IAU

Global gold demand in Q1 2012 was 1,097.6 tonnes (t), down 5% from the high demand levels seen in Q1 2011 (1,150.7t), according to the World Gold Council’s Gold Demand Trends report. 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 2011. Demand for the quarter was underpinned by increased demand in China, continued central bank purchasing and inflows into exchange-traded funds (ETFs).

The main highlights from the report are as follows:

  • 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 2011, demonstrating investors’ continued need to preserve wealth amidst ongoing concerns over inflation. 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.
  • Gold demand in India was affected in Q1 2012 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 2011. 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.
  • Central banks across the globe continued the now established trend of net purchasing with demand in Q1 2012 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.
  • First quarter demand for ETFs and similar products totalled 51.4t, equivalent to a value of US$2.8bn; in stark contrast to the first quarter of 2011, when the sector witnessed net outflows.

Marcus Grubb, Managing Director, Investment at the World Gold Council said,

“China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West. As we previously forecast it is likely China will become the largest source of demand for gold in 2012.

This growth story also extends to other emerging market economies and is reinforced by central banks’ continued buying of gold, as a diversifier and a preserver of national wealth. The current picture of the gold market is diverse and not withstanding a flight into US dollars and treasuries near term, we believe the fundamental reasons for investing in gold today remain very strong and compelling.”

Gold demand and supply statistics for Q1 2012:

  • First quarter gold demand of 1,097.6t was down 5% in comparison to Q1 2011 though in line with the average of the preceding eight quarters.
  • The value measure of gold demand was 16% higher year-on-year at US$59.7bn.
  • Demand in the jewellery sector of 519.8t was down 6% year-on-year, which when considered against a rise in prices of 22% shows resilience in jewellery demand. Increasing prices are leading to a re-premiumisation of gold, as it becomes even more exclusive. In US$ terms, the value of jewellery demand grew by 14% to a record US$28.3 billion.
  • The average gold price of US$1,690.57 was 22% higher than the average of Q1 2011. As a result, in value terms, virtually all sectors of gold demand posted year-on-year increases, with the exception of physical bar demand, which was broadly flat, and the official sector, where purchasing activity was below Q1 2011’s exceptional levels.
  • First quarter gold investment demand (including gold bars, coins, ETFs and similar products) grew by 13% year-on-year to 389.3t. In US$ terms, this equated to a demand value of US$21.2bn, 38% higher year-on-year. Increases in demand for ETFs and medals/imitation coins meant that demand reached 389.3t, 45.8t above Q1 2011 despite declines in demand for physical bars and coins.
  • At 107.7t, demand for gold used in the technology and industrial sectors was down by 7% compared with year-earlier levels.

The Q1 2012 Gold Demand Trends report, which includes comprehensive data provided by Thomson Reuters GFMS, can be viewed at:

About The World Gold Council

The World Gold Council is the market development organisation for the gold industry. Working within the investment, jewellery and technology sectors, as well as engaging in government affairs, our purpose is to provide industry leadership, whilst stimulating and sustaining demand for gold.

We develop gold-backed solutions, services and markets, based on true market insight. As a result, we create structural shifts in demand for gold across key market sectors.

We provide insights into the international gold markets, helping people to better understand the wealth preservation qualities of gold and its role in meeting the social and environmental needs of society.

Based in the UK, with operations in India, the Far East, Europe and the US, the World Gold Council is an association whose members include the world’s leading and most forward thinking gold mining companies.

Related: SPDR Gold Trust (NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU).

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