Gold demand falls in Q2; 39 per cent down in India: WGC

According to World GolGold Watch Jewel Trendzd Council (WGC) report, global gold demand fell 16 per cent to 964 tonnes in April-June. The gold demand in India declined by 39 per cent to 204.1 tonne compared to the overall demand in the same quarter last year on expectations of prices going down.

The world gold demand fell in April-June to 964 tonnes as jewellery sales went down by 30 per cent; coin and bar sales tumbled 56 per cent. Q2 gold demand in India declined to 204.1 tonne compared to last quarter demand that stood at 337 tonne. India’s Q2 2014 gold demand value fell by 41 per cent to `50,564.3 crore, compared to `85,533.8 crore in Q2 2013. 

Global demand

 The global gold demand of 964 tonnes in Q2 was lower as compared to the exceptional upsurge in demand in Q2 2013. Gold-backed ETF selling had helped balance the market last year. Demand for physical gold surged as gold prices had slid by nearly a quarter. Though jewellery demand weakened year-on-year, the broad, 5-year uptrend remains intact. Investment demand was low as compared to the extremes seen during last year as relatively stable price conditions contributed to the subdued environment. Central banks continued to buy gold at a solid, steady pace. Mine production grew 4 per cent year-on-year for a second consecutive quarter, contributing to a 10 per cent increase in gold supply.

The last quarter’s weakness is likely to set the gold market up for a full-year demand drop, albeit by a smaller degree than seen so far this year, the WGC’s managing director for investment, Marcus Grubb, said. “Overall, we think that with Diwali coming (an auspicious time to buy gold in India), stocking for Chinese New Year, and the bad comparison falling away from the second quarter, you are going to see a better picture develop in these figures later in the year… though it will still be a lower year than last year,” he said.

China and India between them accounted for over half of the year-on-year decline in bar and coin demand, the WGC said. Indian bar and coin investment, which has been curbed by import restrictions this year, fell by two-thirds to less than 50 tonnes, while jewellery sales were down 18 per cent. Indian demand is expected to decline to 850-900 tonnes while buying in China are seen falling to 900-1,000 tonnes. Chinese bar and coin demand fell 64 per cent in the second quarter, while jewellery demand was down 45 per cent from last year’s record levels.

Overall Chinese investment demand fell to a near four-year low, with price-sensitive investors put off by a lack of price volatility, the WGC said. A crackdown on bribery and corruption also discouraged purchases of luxury gifts. In a rare bright spot, U.S. jewellery demand grew year-on-year for a fifth consecutive quarter, by 15 per cent to 26.1 tonnes.

Central banks also bought gold for a 14th straight quarter, with acquisitions up 28 per cent in the Q2 to nearly 118 tonnes. Emerging markets were the biggest buyers, particularly Russia, Kazakhstan and Tajikistan. Mine production rose 4 per cent in the second quarter, and is set to hit another record high this year after peaking at 3,038.5 tonnes in 2013.

“On the basis that the first half is 5-6 per cent up on last year, even with a flattening trend in the second half, you’ll probably see a small increase this year on 2013,” Grubb said.
“But that is likely to represent peak mine production, given the re-calibration we’ve seen in the industry over the last 18 months.”

India’s Q2 gold demand drops by 39%

According to reports, the consumer expectation of prices to drop `25,000 and uncertainty in the market affect the gold demand in Q2. The total jewellery demand declined by 18 per cent to 154.5 tonne in this quarter. The value of jewellery demand was at `38,269.5 crore, a fall of 20 per cent from Q2 2013 (`47,716.2 crore). Total investment demand for Q2 2014 was down by 67 per cent at 49.6 tonne compared to 149 tonnes in Q2 2013. In value terms, gold investment demand during the quarter under review was `12,294.8 crore, a drop of 67 per cent as compared to `37,817.6 crore in Q2 2013, the report said.

“However, considering the long term average of the last five years, demand in Q2 remains robust, particularly considering the impact of a policy squeeze and other economic factors that have affected savings in general,” WGC Managing Director of India, Somasundaram PR told PTI. With the price holding at steady levels and better official supply, the third quarter is looking better and the demand in the second half of the year is likely to be near normal with the coming wedding season and favourable monsoons, Somasundaram said. Even price premiums in India declined sharply to $2 an ounce from the earlier $200 after supply pressures loosened as RBI permitted trading houses to import gold again.

Hence, WGC expects annual demand at 850-950 tonne, against the previous estimate of 900-1000 tonne with over 200 tonne flowing through the grey market. However, jeweller selling coins, range bound price and stabilization of grey is expected to boost demand, according to Somasundaram. The recycling during Q2 this year increased to 16.4 tonne compared to 9.5 tonne in the same quarter last year.

India holds around 22,000 tonne of gold valued at over a trillion US dollars, Somasundaram said, adding therefore, it is essential to find ways of mobilizing and monetising the stock to support economic growth for the benefit of the economy as a whole.