Gold investment nearly halved in the first quarter as a brighter view of the U.S. economy prompted investors in the West to favor other assets like stocks over bullion, the World Gold Council said on Thursday.
Overall gold demand fell 13 percent to a three-year low of 963 tons in the last quarter as rising jewellery demand and strong appetite for coins and bars failed to offset a sharp drop in investment, chiefly in Exchange-Traded Funds.
These investment vehicles, which issue securities backed by physical metal, have proved a popular way to gain exposure to the gold price since the start of the financial crisis, but saw record outflows in the first quarter.
Record Chinese demand for jewellery, coins and bars, contributing to an extra 60 tons of jewellery demand and 35 tons of bar and coin offtake worldwide still fell well short of counter-balancing a 195-ton drop in investment. The fall in financial flows into the metal included a 177-ton outflow from ETFs.
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The WGC's managing director for investment, Marcus Grubb, said he expected investment levels to stabilize over the year as a whole, and for rising interest in physical gold to lead to more stable demand in the full year.
"What you've seen is a near-term readjustment to more positive views on the U.S. since December," he said. "You're unlikely to see the same level of selling in the rest of the year unless you get a rampant and sustainable recovery in the U.S., which I don't think is on the cards.
"Meanwhile the gold heads east, because if people are selling the ETFs in the United States and to some degree in Europe, consumers in India and China, and bar and coin investors around the world, are buying that gold."
Chinese Demand Hits Record
Chinese coin and bar demand hit a quarterly record of 109.5 tons in the first quarter, up 22 percent. India saw the biggest overall rise in bar and coin investment, with demand up 52 percent to 97 tons.
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U.S. buying also rose by 43 percent to 20.1 tons, while European demand fell 28 percent to 47.5 tons. Buying of small investment products like bars and coins rose 10 percent overall to 377.7 tons in the first quarter, the WGC said.
Jewellery buying was the sector showing the most strength, with offtake up 12 percent to 551 tons. China led the rise, with consumption rising 19 percent year on year to a record 185 tons, while Indian buying rose 15 percent to 159.5 tons.
"These figures show that notwithstanding the slowdown in China that we've seen, this was a very strong quarter, and all the evidence in Q2 so far is that it (demand) remained very strong in April as a result of the price fall," Grubb said.
Demand for gold coins, bars and jewellery shot up to unprecedented levels last month, according to refiners and dealers, as waning investment knocked prices <XAU=> to their lowest in more than two years.
"We're sticking with our forecasts (for physical gold demand) for China and India this year, which is for Indian demand to come in between 865 and 965 tons, and Chinese demand at 780 to 880 tons," Grubb said.
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Gold jewellery buying in the United States rose for the first time since 2005, by 6 percent to 18.8 tons. European jewellery demand continued to decline, falling another 10 percent in Q1 to 5.6 tons.
Bullion demand from central banks edged down 5 percent to 109 tons, its lowest in nearly two years, but the official sector, once a major supplier of gold to the market, remained a net buyer for a ninth consecutive quarter, the WGC said.
On the other side of the market, gold mine supply rose 4 percent to 685 tons in the first quarter, the WGC said, while gold recycling fell 4 percent to 366.6 tons.
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