Global gold demand fell one percent in the first quarter from the first three months of last year, according to the World Gold Council, largely reflecting a seven-percent drop in Chinese consumption.
Global demand fell to 1,079.3 tonnes from 1,089.9 tonnes and was down three percent on the five-year average, it said in a report on Thursday. Jewellery demand dropped three percent to 600.8 tonnes while technology demand slipped two percent to 80.4 tonnes.
Central banks continued to purchase at similar rates – overall official purchases were almost unchanged at 119.4 tonnes against 119.8 tonnes in the same period of last year, the WGC calculates.
Significantly, however, Chinese consumer demand slowed seven percent to 272.9 tonnes, with jewellery demand in particular down 10 percent despite the gold price averaging six percent lower in the first quarter of 2015 at $1,218.50 per ounce compared with $1,293.10 in the same period of last year.
The World Gold Council attributes this drop to the continued slowdown in economic growth in China affecting consumer sentiment.
“The government’s anti-corruption drive continues to restrain demand, although the bulk of the effects of this policy have already been felt and should have a minimal impact on year-on-year comparisons,” it said.
But the first three months of 2014 were a record quarter for Chinese jewellery demand at 236 tonnes and the 2015 figure outpaced the five-year average by 27 percent, the WGC noted.
Still, many investors have sought alternative asset classes while Chinese stock markets have surged, it pointed out.
“[This] ate into first-quarter gold demand in China, both investment and jewellery,” it said. “Although not overtly an investment, there is a strong investment motive to jewellery demand, which was undermined as Chinese consumers turned their attention to the stock markets.”
Offsetting the Chinese slowdown was a 15-percent increase in Indian consumption at 191.7 tonnes. In particular, there was a 22-percent increase in Indian jewellery demand to 150.8 tonnes, although this was primarily due to unusual weakness in the 2014 period rather than any particular strength in 2015.
“The first quarter of last year saw a combination of factors discourage jewellery purchases: import curbs were in full force; approaching government elections created an atmosphere of uncertainty; and temporary restrictions were placed on free movement of cash and assets such as gold,” the WGC said.
“In comparison, conditions in the most recent quarter were far more encouraging, with demand just 3 percent below its five-year quarterly average of 154.7 tonnes,” it added.
Continued challenges in the Turkish economy saw jewellery demand there drop 28 percent year-on-year to 10.4 tonnes. Further issues may lie ahead, according to the WGC.
“Mounting political risk, dwindling economic growth, soaring unemployment and concern over the independence of the central bank all fuelled a steep drop in the lira… political and economic concerns linger ahead of the June general election,” it said.
In other markets, US consumption slipped two percent to 47.1 tonnes and Middle Eastern demand slumped 18 percent at 80.5 tonnes but European demand excluding the CIS climbed 12 percent to 87.7 tonnes.
On the supply side, total gold supply was little changed from the previous year at 1,089.2 tonnes, with a one-percent rise in global mine supply to 730.8 tonnes offsetting a three-percent fall in scrap supply to 355.1 tonnes.
The drop in recycling was largely due to the “continued shrinkage” in Western markets, the WGC said, although recycling in Turkey has increased 21 percent year-on-year amid the increase in the local price.
The increase in mine production was spread across several markets. Mongolia’s Oyu Tolgoi mine contributed four tonnes of growth, North American mines generated growth of around nine percent and several African mines also contributed.
(Editing by Mark Shaw)
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