China and India step up to the gold demand plate

 My latest article on Sharpspixley.com

As always appears to be the case, statistics on gold demand can be contradictory which is perhaps why gold’s fundamentals are so difficult to tie down.  Take the World Gold Council (WGC)’s latest Gold Demand Trends report which suggests global gold demand fell by 18% (228 tonnes) during Q1, compared with the admittedly very high (record) figures achieved in Q1 2016.  But within the report there do appear to have been some major anomalies.

Firstly, the slump in assessed demand was largely for two reasons – sharply reduced gold ETF inflows and a fall in Central Bank gold reserve increases.  But, it should be noted, that gold inflows into the ETFs did remain positive over the quarter and the Central Bank figures were skewed by China’s non reporting of any gold reserve changes since its currency was accepted as part of the IMF’s Special Drawing Rights (SDR) in October last year.  In Q1 2016, China had announced additions of 35.2 tonnes to its official reserves – some 15% of the fall in assessed gold demand during the latest quarter.  If one takes China out of the equation other Central Bank gold additions came to a positive 7.4 tonnes – and on its reserve reporting track record China’s zero reserve addition figure has to be considered suspect.

Coming back to Central Bank shortfalls, can we believe the China figures at all?  One should recall that up until July 2015 China only reported any reserve increases at five of six year intervals maintaining the pretence that it was not adding to its reserves monthly, as it obviously was.  But, in the immediate run up to the IMF decision to re-jig its SDR make-up to include the yuan, the Asian nation began announcing monthly reserve increases.  Once the yuan officially became a part of the SDR, China has reported zero gold reserve increases.  Can this just be coincidence?

China is known to favour building its gold reserve as an important facet of securing its place in the global trade picture and its whole gold reserve adding policy has always been shrouded in secrecy.  Some China-watching  analysts will argue that, in fact, its real gold reserve is far higher than the officially stated figure of 1,842.6 tonnes.  After all it has been the world’s largest gold producer for some years now….

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WGC Report Shows H1 Gold Demand Highest On Record

The latest Gold Demand Trends report from the World Gold Council (WGC) is now out with data supplied by London-based precious metals research consultancy, Metals Focus.  It shows the highest level of H1 gold demand on record, largely on the back of investment demand – particularly in gold ETFs which absorbed 580 tonnes in the first half of the year.  Overall this countered a fall in net central bank gold sales, and falling consumer demand in the world’s two biggest countries for this in India and China.

While demand was high – so was supply with a resurgence in scrap supply brought on by the 25% rise in the US dollar gold price over the half year – which was enhanced in some countries by falling domestic currency parities against the dollar.

The World Gold Council’s summary press release detailing some of the highlights of the latest report is reproduced below, complete with a link to download the full report.

Near record high in H1 demand driven by western investors

Global gold demand reached 2,335 tonnes (t) in the first half of 2016 with investment reaching record H1 levels, 16% higher than the previous record in H1 2009, according to the World Gold Council’s latest Gold Demand Trends report.

Q2 2016 continued in the same vein as the first quarter this year with overall gold demand growing to 1,050t, up 15% from the Q2 2015 figure of 910t, boosted by considerable and consistent investment demand. Investment demand reached 448t as investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability. Exchange traded funds (ETFs) had a stellar first half of the year at almost 580t due to the additional inflows in Q2 of 237t. Bar and coin demand was also up in a number of markets in Q2, including the US at 25t (up 101%), leading to H1 bar and coin investment of 485t, 4% higher than the first half last year.

A cause and effect of the growth in investment demand was a 25% rise in the US$ gold price, the strongest H1 price gain since 1980. This contributed to lacklustre consumer purchasing, particularly in price sensitive markets. While there were increases for jewellery demand in the US (up 1%) and Iran (up 10%), the customary powerhouses of China and India saw drops in Q2 of 15% to 144t and 20% to 98t respectively. India was further impacted by rural incomes remaining under pressure, as well as the government’s decision to increase excise duty. Meanwhile, China faced a challenging quarter against a relatively soft economic backdrop and the implementation of new hallmarking legislation in May.

Central bank demand decreased 40% in Q2 2016 (77t), compared to 127t in the same period last year, resulting in net purchases for H1 now totalling 185t. While this quarter was the lowest level of net purchases since Q2 2011, it comes amid a significant rise in gold prices over H1, dramatically increasing the value of central bank gold holdings to US$1.4trn. Central banks are still expected to be key contributors to global demand, as gold provides diversification from currency reserves and, most notably, the dollar.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented:

“The strength of this quarter’s demand means that the first half of 2016 has been the second highest for gold on record, weighing in at 2,335t. The global picture for gold is dominated by considerable and continued investment demand driven by the West as investors rebalance their investments in response to the ever-expanding pool of negative yielding government bonds and heightened political and economic uncertainty.

The foundations for this demand are strong and diverse, drawing on a broad spectrum of investors accessing gold via a range of products, with gold-backed ETFs and bars and coins performing particularly strongly. But the global gold market is, and has always been, based on balance: so whilst investment is currently the largest component of demand, we see a gradual return for the jewellery market in the second half of 2016.”

Total supply for Q2 2016 saw an increase of 10% to 1,145t compared to 1,042t in the second quarter of 2015. The primary driver of this increase was recycling, which saw a significant rise  of 23%, as consumers capitalised on the rising gold price, leading to first half recycled gold supply of 687t, 10% higher than the 626t seen in H1 2015. Mine production remained broadly flat at 787t (790t in Q2 2015), while gold producers added 30t to the hedgebook.

The key findings included in the Gold Demand Trends Q2 2016 report are as follows:

  • Overall demand for Q2 2016 increased by 15% to 1,050t, up from 910t in Q2 2015.
  • Total consumer demand was 656t down 9% compared to 723t in Q2 2015.
  • Global investment demand was 448t, up 141% from 186t in the same period last year.
  • Global jewellery demand fell 14% to 444t versus 514t in the second quarter of 2015.
  • Central bank demand fell 40% to 77t in Q2 2016, compared to 127t in the same period last year.
  • Demand in the technology sector fell 3% to 81t in Q2 2016.
  • Total supply was up 10% to 1,145t in Q2 2016, from 1,042t in Q2 2015. Mine production in Q2 2016 was virtually flat year-on-year at 787t.

The Q2 2016 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed at http://www.gold.org/supply-and-demand/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/supply-and-demand/interactive-gold-market-charting.

Global gold demand down 12% Q2 2015

The latest run of statistics from the World Gold Council has been released in the form of its Q2 Gold Demand Trends analysis with data nowadays being provided by London-based precious metals consultancy – Metals Focus.  While it finds that global demand is down 12% year on year it notes that there is a good likelihood that demand will pick up well in the second half – indeed the latest gold price moves and figures for Indian imports and SGE withdrawals suggest that this may already be happening.  On the Fundamentals front it also noted that supply was down 5% with an increase in mine supply being more than countered by a fall in gold scrap supplies. Central bank purchases were down year on year but still remained strong with the Q2 figure up on that for Q1.

The World Gold Council’s own release on the latest figures, with links to the full report, follows:

The World Gold Council’s Gold Demand Trends report for Q2 2015 shows total demand was 915 tonnes (t), a fall of 12% compared to the same period last year, due mainly to a decline in demand from consumers in India and China. However, demand in Europe and the US grew, driven by a mixture of increasingly confident jewellery buyers and strong demand for bars and coins. Looking ahead, there are encouraging signs moving into what are traditionally the busiest quarters for gold buying in India and China.

Overall jewellery demand was down 14% to 513t, from 595t in 2014 due to falls in consumer spending in Asia. In China, slowing economic growth and a rallying stock market led to a 5% fall in demand to 174t. In India, the heavy unseasonal rains in Q1 and drought in Q2 impacted rural incomes and affected gold demand. In addition, a dearth of auspicious days for marriages in Q3 meant that wedding-related demand was unusually slow, leading to a fall in jewellery demand of 23% to 118t. Overall, if we look at the picture for the first half of this year in India, jewellery was down 3% to 268.8t from 276.1t (H1 2014). The US remained steady, with jewellery demand up for the sixth consecutive quarter by 2% (26t). In Europe demand was also up, with Germany up 7% and the UK and Spain both growing by 6%.

Global investment demand was down 11% to 179t from 200t in Q2 2014. India was the main driver of the fall, down 30% to 37t, due to uncertain price expectations and a buoyant stock market. This was countered by a rise in Chinese bar and coin demand, up 6% to 42t. In Europe, fears of a potential Greek exit from the eurozone saw retail investment in gold reach 47t, a rise of 19% compared to last year. The US also saw strong demand, with retail investment increasing by 7%. Of particular note was the huge burst of activity in June, when bullion coin sales by the US Mint hit a 17-month high.

Elsewhere, central banks continued to be strong buyers of gold. Net official sector purchases totalled 137t, with Russia and Kazakhstan the biggest purchasers. Although a year-on-year fall of 13%, buying increased by 11% when compared with the first quarter of this year. It is the 18th consecutive quarter where central banks were net purchasers of gold.

Total supply was down 5% to 1,033t, as an increase in mine production of 3% to 787t in Q2 2015 was offset by declining recycling levels – down 8% to 251t. The indication for H2 2015 is that mine production will slow as the gold mining industry continues to manage their costs and optimise operations in the face of challenging markets.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:

“It’s been a challenging market for gold this quarter, particularly in Asia, on the back of falls in India and China. The reverse is true for western jewellery markets, as increased economic confidence led to continued growth in consumer demand. It is  fair to say that investment demand for the quarter remained muted given the continuing recovery in the US economy and booming stock markets in India and China during the quarter. 

Jewellery market prospects look healthier for the remainder of the year with the upcoming wedding and festival season in India. In addition, falls in the gold price have historically triggered buying in price sensitive markets and we are already seeing early indications of this across Asia and the Middle East. Conversely, sharp falls in Chinese stock markets have shaken the largely consumer investment base and we are seeing early indications of interest in buying gold again – all illustrating the unique self balancing nature of gold demand and the diverse drivers which underpin it.” 

Gold demand and supply statistics for Q2 2015

  • Overall demand was down 12% in Q2 2015 to 915t compared to 1,038t in Q2 2014.
  • Total consumer demand – made up of jewellery demand and coin and bar demand – totalled 715t, down 14% compared to Q2 2014.
  • Global jewellery demand was 513t, down 14% compared to the same period last year, due to falls in China, down 5% to 174t, as well as India, down 23% to 118t.  The US and Europe saw continued growth with the US up 2% to 26t, and Europe up 1% to 15t.
  • Total investment demand was down 11% to 179t, compared to 200t in the same quarter the previous year. Demand for bars and coins saw a 15% drop to 201t from 238t  the previous year, as the sector was affected by an expected increase in US interest rates and a continued shift towards other asset classes, notably equities. ETFs saw outflows totalling 23t, lower than the outflows of 38t seen in the same quarter last year.
  • Central banks continued to be strong buyers of gold, accounting for 137t in Q2 2015, slightly down on the equivalent quarter last year, but up 11% compared to the previous quarter. It was the 18th consecutive quarter where central banks were net purchasers.
  • Year-on-year quarterly mine production increased 3% to 787t in Q2 2015, against 763t in Q2 2014. Recycling levels were down 8% year-on-year to 251t compared to 273t in Q2 2014, resulting in total supply falling 5% to 1,033t.

The Q2 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/supply-and-demand/gold-demand-trendsand on our iOS and Android apps..

You can follow the World Gold Council on Twitter at @goldcouncil and Like on Facebook

WGC latest gold demand trends report – China back at no.1 consumer

The World Gold Council has released its latest quarterly Gold Demand Trends publication today, this time with data provided by Metals Focus – GFMS has been the principal information provider in the past for these reports.  Here follows the WGC’s Press Release ahead of any attempt to delve into the report in more detail.  Mineweb has now also published a more detailed article from me on some of the report’s findings – see WGC resurrects China as world’s No.1 gold consumer.  There is also an article on Seeking Alpha: Which Nation Is Really World’s No.1 Gold Consumer?

Global gold market remains steady in Q1 2015 demonstrating the unique diversity of gold demand

The first three months of 2015 saw stable gold demand, according to the latest Gold Demands Trends report from the World Gold Council. Total demand for Q1 2015 was 1,079 tonnes (t), down just 1% on the same period last year.

Conditions differed from market to market, but at an aggregate level, these differences broadly balanced each other out. Once again, consumers in Eastern countries dominated the market with China and India alone accounting for 54% of total global consumer demand in the quarter.

Global demand for jewellery, still the most significant component of overall demand, totalled 601t in Q1 2015, 3% lower than the 620t recorded in the same quarter last year. There were pockets of strength across a number of South East Asian countries – including Malaysia, Indonesia, South Korea, Thailand and Vietnam. In addition, jewellery demand in India was up 22% to 151t whilst the US saw further steady growth, up 4%. This was counterbalanced by declines in Turkey, Russia and the Middle East and in China, jewellery demand dropped 10% to 213t, as a rising stock market diverted money into equities, but it was still up 27% against the five-year average.

Investment demand, the other key driver of the world’s gold market, rose 4% to 279t in Q1 2015, up from 268t in Q1 2014. There were net inflows of 26t into gold-backed Exchange Traded Funds (ETFs) – turning positive for the first time since Q4 2012 as western investor sentiment returned to gold. Investment in bars and coins came under pressure in the face of buoyant stock markets, notably in India and China, and currency fluctuations in Turkey and Japan, but this was offset by strong retail investor demand in the euro zone up 16% to 61t, most notably in Germany and Switzerland.

Central banks continued to be strong buyers, purchasing 119t in the quarter, the same volume as in Q1 2014. This was the 17th consecutive quarter that central banks have been net purchasers of gold as they continue to seek diversification away from the US dollar.

Total supply remained virtually unchanged at 1,089t as a 2% rise in Q1 2015 mine production to 729t was balanced by a 3% fall in recycling to 355t, compared with the same quarter last year.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:

“The global gold market’s ecosystem functioned healthily during the first three months of 2015 illustrating the unique nature of gold and its ability to rebalance across sectors and geographies. This broadly stable global picture belies regional and sector differences which include: a 10% drop in jewellery demand in China, a 22% uptick in jewellery demand in India and the first net inflows to gold ETFs since 2012, reflecting gold’s resilience and ability to  respond to different cues in different ways. Once again, consumers in Eastern countries dominated the market with China and India alone accounting for 54% of total global consumer demand in the quarter”

In value terms, gold demand in Q1 2015 was US$42bn, down 7% compared to Q1 2014. The average gold price of US$1,218.5/oz was down 6% on the average Q1 2014 price.

The key findings from the report are as follows:

Total global jewellery demand was 601t in the first quarter, a fall of 3% on the same quarter last year. These overall figures mask significantly different local trends: In India, jewellery demand was 151t, 22% higher than the same period last year albeit from a very low base. Demand was also 4% higher in both the US and the UK, at 22.4t and 4t respectively. In China, demand fell 10% to 213t against the same quarter in 2014, as slower economic growth and a buoyant stock market affected consumer purchases, but it exceeded its five-year quarterly average by 27%, lending weight to the view that the longer-term uptrend is comfortably intact

  • Total investment demand was up 4% to 279t, compared to 268t in the same quarter the previous year. Demand for bars and coins fell 10% from the previous year to 253t as retail investors, notably in India, diverted their money into equities in the wake of the country’s strong stock market performance. However ETFs saw their first inflows since Q4 2012, albeit at the modest rate of 26t.
  • Central bank net purchases were 119t in Q1 2015, unchanged on the same period in 2014 and the 17th consecutive quarter in which central banks have been net purchasers as they diversify their assets.
  • Total supply remained virtually unchanged at 1,089t as a 2% rise in Q1 2015 mine production to 729t was balanced by a 3% fall in recycling to 355t, compared with the same quarter last year

Gold demand and supply statistics for Q1 2015

  • Q1 gold demand of 1,079t was 1% lower than the 1,090t seen in Q1 2014
  • Total consumer demand – made up of jewellery demand and coin and bar demand – totalled 854t, a fall of 5% on the 902t seen in the same period last year
  • Consumer demand in India rose 15% to 192t, while in China it declined 7% to 273t. Taken together, consumers in India and China alone now account for 54% of all consumer demand
  • Demand in the technology sector was 80t for the quarter, down 2% compared to the previous year
  • Gold demand in value terms in Q1 2014 was US$42bn, down 7% on last year

The Q1 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/ and on our iPad app which can be downloaded from www.itunes.com, and a video can be seen here.

2015 global gold supply deficit could be substantial

If we take the SGE gold withdrawal figures as being a more representative indicator of physical gold movement from the West to China, rather than the limited assessments by GFMS used in the latest WGC report, and add in Indian and other global demand then gold supply is already in deficit, with shortfalls becoming ever higher.

Lawrie Williams

Returning to the latest World Gold Council (WGC)/GFMS Gold Demand Trends report, which puts mainland Chinese 2014 consumer demand at a mere 814 tonnes  together with the Shanghai Gold Exchange (SGE) overall withdrawal figures (around 2,100 tonnes) – assuming both to be in essence correct, but looking at different parameters – the difference is explained in the Gold Demand Trends report as due to gold purchases by commercial banks, which it doesn’t include in its statistical calculations – see Chinese gold demand discrepancy explained?

In terms of physical gold flows, however, one has to see this apparent flood of gold into the Chinese commercial banks as a significant contributor to total global physical gold offtake and thus in our view should be added into the figure for total gold demand.  The actual figure for this ‘additional demand’ last year will have been around 1,200 to 1,300 tonnes – a huge amount and one wonders if this is actually perhaps a proxy for Chinese central bank offtake, or even an accounting mechanism whereby the Chinese central bank increases its effective gold reserves without having to report it to the IMF.  (This will be the subject of a following article).

What the WGC also noted in its latest report was the big recovery in Indian demand ahead of a widely anticipated relaxation of some of that nation’s gold import controls under the new more gold- and business-friendly Modi government.  This represents something of a change in perception within the huge gold jewellery and trading business in the world’s second largest gold consumer (by our reckoning) and bodes well for total global gold demand this year with China (if one uses the SGE withdrawal figures as being that country’s total offtake) and India alone between them consuming virtually all global gold supply.  This averaged around 82 tonnes per week last year from all sources including scrap supply (falling along with lower gold prices), sales out of gold ETFs (also falling), net hedging (perhaps rising but a small component) and new mined gold (expected to be flat this year).

Thus Chinese and Indian demand alone is probably exceeding total gold supply at the moment as sales out of gold ETFs so far this year are around zero to negative.  Meanwhile, of course, these two Asian nations are not the only global gold consumers as they account between them for around 56% of global total demand according to the WGC statistics (although as we’ve noted above they seem to ignore the gold being taken in by Chinese banks which would make the percentage rather larger, but still leave the rest of world consuming around another 35 tonnes a week!)

That all suggests a substantial total global gold supply deficit.  Indeed on this basis gold supply may have actually been in deficit over the past couple of years too, although this will have been mitigated by the big sales out of the gold ETFs.  If demand continues at current levels throughout the current year (which it most probably won’t) that would suggest a very large global gold supply deficit of somewhere around 1,800 tonnes.  But with the normal fall-off in Chinese and Indian demand through the middle months of the year that kind of deficit is unlikely, but the overall deficit figure would still likely be large – perhaps in the region of 1,000 tonnes of physical gold or more given ETF liquidations will likely be much lower this year unless there is a big further fall in the gold price.

With gold disappearing from the supply chain at this kind of rate one wonders how long the gold price can be held down at current levels, dependent as it is largely on financial dealings on the Western commodity markets.  New such markets are now springing up in the East – notably in Shanghai, Hong Kong and Singapore.  If they eventually succeed in wresting precious metals price control away from the West we could see a sea change occurring in gold and silver market valuations.  This is perhaps an inevitable process over time, but we don’t yet have a handle on how long this will take – but surely by the end of the decade, if not earlier?