September 24, 2017

Overall gold demand declines in Q2 as slower ETF inflows offset stronger physical demand

Global gold demand in Q2 2017 was 953 tonnes (t), a fall of 10% compared with the same period in 2016. This was reflected in a 14% decline in demand for the first half of 2017, which slowed to 2,004t, according to the World Gold Council’s latest Gold Demand Trends report.

After record levels of inflows into Exchange Traded Funds (ETFs) in H1 2016, a significant slowdown in the sector was the predominant factor behind the fall in overall demand so far this year. Net central bank purchases of 177t in the first half of 2017 were also slightly lower compared to the same period in 2016, down 3%. By contrast, H1 2017 saw bar and coin investment grow, as did both jewellery and technology demand, each making modest gains compared to 2016.

ETF inflows slowed dramatically from last year’s record pace. Nevertheless holdings in the sector continued to grow, adding 56t in Q2, bringing total inflows in H1 to 168t. European ETFs saw the strongest H1 inflows, with holdings in these funds reaching a record 978t.

Bar and coin investment rebounded from very low levels last year. Q2 demand gained 13% from Q2 2016 to 241t, while H1 demand rose 11% to 532t. India contributed strongly to the recovery, having been particularly weak last year. Turkey also saw a strong jump in demand, due to the country’s economic recovery, double-digit inflation and relative currency stability.

Jewellery demand also strengthened from a weak 2016 to 481t, but fell short of the long-term average. India was the main contributor to the 8% gain in Q2.

Central banks continue to buy gold, but at a more modest pace than in recent years, totalling 94t, a 20% increase on the previous year. The most recent quarter saw Turkey’s central bank add to its gold reserves – its first significant purchase since the 1980s.

Technology demand registered its third consecutive quarter of growth, up 2% to 81t. Increasing adoption of wireless charging and the development of features using LEDs has boosted demand. H2’s busy release schedule of new smartphone handsets also supported memory chip production.

 Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented: “Demand for H1 2017 was down 14% compared to last year, but in some respects the market was in better shape. Last year’s growth was solely down to record ETF inflows, while consumer demand slumped. So far this year we have seen steady ETF inflows in Europe and the US, jewellery demand has recovered with good growth in India, while retail investment and technology demand is up too.

“There are a few things to watch out for in the rest of the year. Inflation data out of the US looks soft and markets have pushed out their expectations for a rate rise. The monsoon is looking good in India and, providing the market adapts to the new GST, we may see solid demand around Diwali. And as the next generation of smartphones gets rolled out we may see good support for technology demand.”

 Total supply fell 8% to 1,066t this quarter compared with the same period last year. This was largely led by a steep drop in recycling, down 18% to 280t, and a continuation of net de-hedging, albeit by a modest 5t, in the subdued Q2 price environment. Mine production remained virtually flat, falling just 3t to 791t.

The year-on-year comparison for recycling was also affected by the elevated levels seen in the first three quarters of 2016, when the rapidly-increasing global gold price, along with a tax amnesty in Indonesia, enticed consumers to liquidate their assets. The first half of 2017 represents a continued ‘normalisation’ of recycling in most markets.

The key findings included in the Gold Demand Trends Q2 2017 report are as follows:

  • Overall demand was 953t, a fall of 10% compared with 1,056t in Q2 2016
  • Total consumer demand rose by 9% to 722t, from 660t in the same period last year
  • Total investment demand fell 34% to 297t compared with 450t in Q2 2016
  • Global jewellery demand grew 8% to 481t, from 447t in the same period last year
  • Central bank demand climbed 20% to 94t compared with 78t in Q2 2016
  • Demand in the technology sector increased 2% to 81t compared with 80t in Q2 2016
  • Total supply was down 8% to 1,066t, from 1,160t in the same period last year
  • Recycling fell 18% to 280t compared with 343t in Q2 2016

The Gold Demand Trends Q2 2017 report, which includes comprehensive data provided by Metals Focus, can be viewed at http://www.gold.org/research/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting tool http://www.gold.org/

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