JOHANNESBURG (miningweekly.com) – Continued growth in central bank buying and growth in gold-backed exchange-traded funds (ETFs) contributed to a 7% year-on-year increase in global gold demand to 1 053.3 t for the first quarter of this year, the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ (GDT) report shows.

Gold demand for the first quarter of 2018 had been below 1 000 t, the WGC noted on Thursday.

WGC member and market relations head John Mulligan told Mining Weekly Online that the WGC was also expecting a “fairly robust” second quarter in terms of gold demand, with the investment picture hinging on what the medium-market sentiment will be regarding risk in terms of gold.

The GDT report aims to map market flows, such as where demand is coming from and where it is going, as well as where the supply and demand balance is, in order to provide stakeholders with rational and consistent information on which to base decisions.

WGC market intelligence head Alistair Hewitt, meanwhile, said that, not only did the beginning of this year see a sharp recovery in investor sentiment in equity and debt markets, but gold appetite remained solid.

Mulligan added that this first quarter, compared with that of 2018, “looks reasonably strong” and is a “fairly stable picture”.

Looking at the overall pattern in terms of demand, the stability that this quarter presented was a key factors for the different gold sectors and markets. Within that, he highlighted some strong elements, such as the drivers of demand, particularly that of central banks.

The report highlighted that central banks bought 145.5 t of gold in the first quarter of the year, representing not only the strongest start to a year since 2013, but also a 68% increase year-on-year.

Diversification, particularly away from US assets, which are seen as a major risk, and a desire for safe, liquid assets were the main drivers of purchases during the quarter.

On a rolling four-quarter basis, gold buying reached a record high of 715.7 t.

“In each quarter over the last year or so, we’ve been seeing a slightly more diverse set of banks buying either periodically or starting to enter the market. So, this quarter we saw Qatar, Columbia, Ecuador – which are banks we haven’t seen in the recent past as gold buyers – and quite significantly, we saw the Reserve Bank of India making purchases for the thirteenth consecutive month now,” he elaborated.

India, he said, was starting to become a concerted central bank, which was important considering that India was a significant gold market.

In addition, Hewitt pointed out that, with central banks on both sides of the Atlantic putting monetary policy tightening on hold and potentially easing policy, it is likely to be supportive of gold demand moving forward.

During the period, jewellery demand rose by only 1% compared with the same period last year, at 530.3 t, and was boosted by India and its concept of “auspicious days”, which are days allocated for certain festivals or activities. Most significant, Mulligan highlighted, was the wedding season in India, which had a big impact on the country’s gold demand.

A lower local rupee gold price in late February and early March coincided with the traditional gold buying wedding season, which lifted jewellery demand in this country to 125.4 t, a 5% increase on the same period last year, the WGC said in the report.

Additionally, this was also the highest first quarter for the sector since 2015.

Meanwhile, ETFs and similar products added 40.3 t to net demand in the first quarter, up 49% on last year, the WGC said, with Mulligan adding that this was another strong start to the year, especially considering that the demand was divided between US and European ETFs.

Funds listed in the US and Europe benefitted from the largest inflows, the WGC added, but pointed out that the former were more erratic while the latter were underpinned by continued geopolitical instability.

With European investment in ETFs hitting a record high, according to the WGC’s report, this quarter’s figures suggest that the factors – such as geopolitical uncertainty and financial market volatility – that are driving the investment-negative yields on Eurozone sovereign debt would continue to underpin investment demand, Hewitt highlighted.

Bar and coin investment softened slightly during the quarter, declining by 1% to 257.8 t owing to a fall in demand for gold bars, while official gold coin buying grew by 12% to 56.1 t, owing to private investors, Mulligan said.

Strong coin buying during the quarter was seen in Iran, Turkey, South Africa and, to some extent, the UK and the US, he added, warning that these markets were often responding to local conditions and the private investor seeking safety and security through gold against either local volatility or local political stresses.

China and Japan were the main contributors to the decline, considering that, specifically in Japan, net investment turned negative on profit-taking following a surge in the local price in February.

Further, gold used in applications such as electronics and light-emitting-diode lighting fell by 3% to 79.3 t from 81.8 t in the same period last year. This 2.5 t drop was owing to trade frictions, sluggish consumer electronics sales, as well as global economic headwinds affecting the sector, the WGC reported.

Opportunities in the electronics sector, however, comprise that of gold use in increasing electrification and electrified vehicles, and the amount of circuitry that is needed in those is “looking like a fairly positive picture for gold”, despite looking fairly weak at the moment, Mulligan said.

The total supply of gold, however, remained largely unchanged in the first quarter at 1 150 t, compared with 1 153.1 t in the same period last year. This, the WGC said, was owing to modest growth in mine production and recycling, which was offset by a decline in net hedging.

Mine production and recycling levels saw small increases compared with the first quarter of 2018, rising to 852.4 t and 286.6 t, respectively. Mine production was expected to remain relatively unchanged, Mulligan added.

Artisanal gold supply, meanwhile, increased considerably over the past five years and was something that the WGC intended to continue monitoring closely, especially considering that its exact impact, at this stage, was difficult to quantify, he noted.

Total consumer demand, meanwhile, remained flat at 788.1 t, compared with 788.6 t in the same period last year, while total investment demand grew 3% to 298.1 t, compared with 288.4 t in the first quarter of 2018.