Gold demand is tanking

While in China the fall in jewellery demand was 5 per cent at 174 tonnes due to slow economic growth and a turbulent stock market, in India it dropped 23 per cent to 118 tonnes following heavy unseasonal rains in Q1 and drought in Q2 that impacted rural incomes and affected gold demand.

Overall jewellery demand was down 14% to 513t, from 595t in 2014 due to falls in consumer spending in Asia. Jewelry makes up about 60% of global gold consumption.

Chinese consumer demand fell 3 percent, with consumer sentiment damaged by volatility in equities and concerns over decelerating growth.

Total investment demand was, however, down 11% to 179 mt, including a 15% drop in bars and coins, as investors continued to seek alternative asset classes and the sector looks ahead to increased US interest rates. The demand for the said quarter stood at 915 tonnes from 1,038 tonnes in Q2 2014. The reverse is true for western jewellery markets, as increased economic confidence led to continued growth in consumer demand.

“Fears of a potential Greek exit from the eurozone saw retail investment in gold reach 47 tonnes, a rise of 19pc compared to last year”, the report said.

The analyst highlighted that, in reality, demand has been fairly consistent overall when seen as part of a longer term trend.

Central bank buying dropped 13%.

“Many of the coins being bought are in smaller denominations, which we can contrast to the financial crisis, when there were larger denominations being bought”. Gold (Other OTC: GDCWF – news) is also considered to be a safe haven in times of market turbulence.

ETFs saw outflows of 23 tonnes in the second quarter; however the pace has slowed compared with the 38 tonnes in outflows seen in the same quarter a year ago.

Chart provided by The World Gold Council.

The report showed that demand for gold remained high among central banks, which were net purchasers for an 18th straight month in June. 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 year-on-year quarterly mine production increased 3% to 787 tonnes in Q2 2015 as against 763 tonnes in Q2 2014. “In any case, the groundswell of these imports have contributed to the inventory overhang in the market”, according to the council. That slowdown, coupled with extreme volatility in the country’s stock markets, dampened demand for gold jewelry.

“One of the big narratives for the development of the global economy is that the renminbi (yuan) will attain an ever greater role in global financial markets”, the WGC’s market intelligence manager Alistair Hewitt said.

Spot gold was heavily rangebound in the second quarter, with the spread between its highs and lows the narrowest of any quarter in eight years.