Gold Demand Supported by Central Banks.
Gold Demand in the second quarter globally fell by 7% from 1,065.8 tons from the same period a year ago to 990 metric tons, largely as a result of declines in the world’s two largest consuming nations of China and India, according to the World Gold Council’s Gold Demand Trends report. This dip in demand was partly due to the comparison with exceptional demand last year, and also reflects the challenging global economic climate. In this context, Gold performed as expected, acting as both a store of value and a source of liquidity. In value terms Gold Demand remained relatively stable year on year at US$51.2 billion, compared to US$51.6 billion in Q2 2011. During the quarter, the average price of Gold was US$1609.49 per ounce, 7% higher than the average for Q2 2011.
The key findings from the report are as follows:
Central Banks, Buyers at Price Dips significantly support Gold Demand:
Weakening Retail Gold Demand has been offset to some extent by a surge in buying by the official sector. Central banks remained significant buyers & Gold Demand picked up in Europe as investors there sought a safe harbor from the sovereign-debt crisis, most noticeably in Germany. Europe’s Gold Demand of 77.6 tons was 19% higher than the five-year average of 65.2 & the value, at 3.1 billion euros, was up 37% year-on-year. U.S. Gold bar and coin demand fell 27% year-on-year to 14.4 tons till now. The world’s central banks bought 157.5 metric tons of Gold from April to June, the highest total since the official sector shifted from net sales to net purchases in the second quarter of 2009. The April-June total was more than double the 66.2 tons from the second quarter of 2011 and accounted for 16% of overall Gold Demand. Central banks that bolstered their holdings during the period included the National Bank of Kazakhstan, and the central banks of the Philippines, Russia and Ukraine.
Gold Demand by Gold ETF:
Gold ETFs are significantly up in tonnage terms. For the first six months of the year, Gold ETF Demand rose 52.4 tons in a Year on Year comparison to the first 6 months of 2011.
Gold Demand weakens in India & China:
China and India account for 45% of global second-quarter jewelry, bar and coin demand. India’s demand fell by a 38% to 181.3 tons. The INR – Indian Rupee, one of the weakest currencies in the world against the US Dollar this year has triggered the price of gold in Rupee terms to record levels, thereby choking off demand in Indian Bullion Markets. Indian Economy is slowing down but the RBI isn’t able to reduce interest rates because of persistent inflation & hence unable to make the same response to a lower rate of growth that as is being done in China, where they are easing monetary policy. Current-account deficit issues are also affecting the Indian Rupee. Indian Gold Demand also was hurt in part by carryover from the impact of higher import and excise taxes, as well as a protest strike by Indian jewelers, in the first quarter. Adding to the woes a below-average monsoon rainfall also generated concerns about farm income and thus affecting Gold Demand from rural areas which amounts to 60% of the annual Gold buying inIndia. Demand in the jewelry sector of 418.3t was 15% lower than 490.6t in Q2 2011, excluding India and China jewelry demand was down by 4%.
For the year, the World Gold Council expects Chinese demand of 850 metric tons or more, while Indian Gold Demand is forecast to be somewhere between 650 and 750 tons.
Second-quarter global investments fell 23% year-on-year to 302 metric tons as a result of less Gold Demand in India and China. Marcus Grubb, Managing Director, Investment at the World Gold Council said, “Gold’s performance reflects the continuing challenging economic climate. A softness in India and China, who between them represent over 45% of the total second quarter jewelry and investment demand accounts for much of the slowing of global gold demand. However, through all the uncertainty, it is clear that gold’s fundamental properties as a vehicle for capital preservation and a source of liquidity continue to endure. This is evident from the activity of central banks, the ultimate long term investors, which continue to increase their gold holdings to diversify reserves and protect against reliance on one or more foreign currencies.”China’s investment and jewelry demand was 144.9t, down 7% from 156.6t in the same quarter last year. Investment demand fell by 4% year-on-year to 51.1t as Chinese investors’ exercised restraint in response to the lack of direction exhibited by Gold prices. The lack of sustained upward momentum in the Gold Prices and the slowing of domestic GDP also discouraged consumers from buying Gold jewelry, which saw a 9% year-on-year decline to 93.8t.
The WGC report described recycling in developing nations as “relatively subdued,” declining 3% year-on-year. The exception was India, where a weak currency pushed gold prices to record highs in rupee terms, prompting a wave of profit-taking among consumers wanting to capitalize on the high price. The supply of recycled gold declined by 12% from year-ago levels to 363.7 tons. This was marginally below the five-year quarterly average of 376.8. Traders & Investors feel Gold is well supported at these levels and has the potential to go higher,” said Marcus Grubb. As a result, they are more likely to hang onto their Gold waiting for further price gains, unless individuals are under extreme economic pressure and have to liquidate assets, he said. “It becomes much more difficult to tempt them into recycling it without a significantly higher price and we haven’t seen a significantly higher price for a little while, with Gold in a range.” Many who had wanted to recycle Gold have already done so, he added.
The World Gold Council is a market development organization for the Gold industry. Data for the report was compiled independently by the consultancy Thomson Reuters GFMS.
At the time of writing, In the Indian Markets, MCX Gold Futures Prices for October delivery are up trading at Rs. 30,127 from a previous close of Rs. 30,005. MCX Silver Futures Prices for September delivery are up trading at Rs. 53,618 from a previous close of Rs. 53,433.
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