ALISTAIR HEWITT The long-term fundamentals for gold demand are well in place
The fundamentals of the gold market remain robust with a return to the long-term average patterns of demand, says the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ report, covering January 2014 to March 2014, released this month.
Gold demand held steady at 1 074 t during the period, almost unchanged, compared with the same period last year.
Consumer demand of 853 t is unsurprisingly lower than the figures seen throughout much of 2013, when buyers took advantage of the lower gold price and drove consumer demand to record levels. However, this year’s first-quarter data indicates a return to long-term average demand trends and is in line with the five-year quarterly average of 850 t, which indicates a degree of stability in the marketplace.
“It is clear that the longer-term under-pinnings of the gold market – such as jewellery demand – remain firmly in place, demonstrating the continuing resilience of the gold market and the unique nature of gold as an asset class, rebalancing to reflect demand,” WGC investment strategy MD Marcus Grubb says in a statement.
Speaking to Mining Weekly, WGC market intelligence manager Alistair Hewitt echoes this sentiment, highlighting that global demand for jewellery – the most significant component of overall demand – totalling 571 t in the first quarter of the year, rose by 3%, compared with the same period last year, as consumers continue to be the dominant drivers of the demand for gold, owing to the continued lower-price environment and rising incomes.
Strongest Start
He further notes that this was the strongest start to the year for jewellery since 2005.
Meanwhile, central banks continue to be strong buyers, purchasing 122 t of gold this quarter – comfortably within the range of buying that has been in place for the last three years.
“While this represents a fall of 6%, com-pared with last year’s first quarter, it is the thirteenth consecutive quarter in which central banks have been net buyers of gold,” says Hewitt.
“This is an encouraging sign for the market as the banks, which tend to be risk-averse investors, are continually committed to diversifying their assets through gold.”
Demand for gold bars and coins totalled 283 t in the first quarter, a fall of 39%, compared with the same period last year. This coincides with the first rise in the quarterly average gold price seen since the fourth quarter of 2012. However, in contrast, outflows from gold-backed exchange-traded funds slowed to just 0.2 t, compared with the more substantial fall of 177 t seen in the first quarter 2013.
Total global gold supply increased marginally by 1%, or 55.7 t, compared with the same period in 2013. Mine production increased by 6%, largely owing to new operations either ramping up or coming on stream, while miners are also starting to manage their costs more effectively.
Offsetting this, however, is the sharp reduction in recycling by 13%, or 46.6 t, during this year’s first quarter.
With the gold price down 21% this year, compared with the 2013 first quarter, the sale of gold bars, coins and jewellery was not as common as it was during the heart of the financial crisis in 2011/12, when the gold price was high.
‘Very Strong Jewellery Market’
Hewitt says, on the basis of this year’s first quarter, the long-term fundamentals for gold demand are well in place and are supported by a “very strong jewellery market”, which is large and accounts for over half of demand, growing 3% year-on-year globally to 571 t in the 2014 first quarter.
“With these long-term fundamentals in place, constrained supply and drivers of gold demand being steady, solid, sustainable and robust, we believe an overall strong gold market is supported,” Hewitt concludes.