Q1 physical gold demand down 9 pct on slower Chinese buying – GFMS

Otmane El Rhazi from The Bullion Desk.

The gold market suffered falls in physical, investment and central bank demand in the first quarter, Thomson Reuters GFMS said.

Overall physical demand of 990 tonnes was down nine percent from 1,090 tonnes in the first three months of 2014, it said in a report on Tuesday.

Jewellery demand fell to 527 tonnes in the first quarter of 2015, a drop of almost seven percent and the lowest first-quarter figure in three years, which GFMS attributed to slower demand in price-sensitive regions.

Retail investment demand fell 17 percent to 236 tonnes while net central bank purchases fell to just 90 tonnes, a 27-percent drop.

In China, jewellery demand was down 12 percent in the first quarter at 190.9 tonnes of 24-carat material, though demand for 18-carat gold fared better, growing 20-30 percent.

GFMS attributed the drop to a combination of factors, including the attractiveness of other investments, evidenced in the 15.9-percent increase in the Shanghai Stock Composite Index over the same period.

“Chinese purchases of physical gold remained weak in the first quarter of 2015 owing to a combination of poor sentiment towards gold; more Chinese residents travelling abroad during the Spring Festival holidays; and a continuation of anti-corruption policies targeting gifting and the attractiveness of other investments,” it said.

But negative media attention in China toward gold as an investment may well had played a part in the poor performance in the first quarter, it noted.

“It will not take much to change this however and Chinese purchasers are just as likely to buy into a rally as they are once a price dip settles,” GFMS said.

In India, which vies with China as the world’s largest consumer, jewellery demand increased two percent year-on-year to 148.5 tonnes, though retail investment dropped 30.8 percent to its weakest since 2009.

GFMS expects Indian consumption to recover from the second quarter for another impressive year of total gold sales despite the negative impact of heavy rains in the first quarter.

“Globally, the gold market has been suffering over the first quarter of 2015 as a lack of firm price direction has seen many remain very cautious, especially in terms of the retail investment and investment grade jewellery side of the market,” it said.

“There have been some bright spots however and field research suggests that while many are choosing to stand on the sidelines for now there remains solid interest in the yellow metal as an asset class,” it added.

On the supply side, total supply fell to its lowest since the third quarter of 2013 at 1,032 tonnes, with scrap supply down eight percent at 283 tonnes and mine production down one percent at 729 tonnes.

(Editing by Mark Shaw)

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