Central bank buying and ETF inflow boosts H1 global gold demand

New Delhi: The global gold demand was 1,123 tonnes in the second quarter (April to June) of 2019, up eight per cent year-on-year, the World Gold Council (WGC) said on Thursday.

The H1 (January to June) demand jumped to a three-year high of 2,181.7 tonnes, largely due to record-breaking central bank purchases.

“The central bank buying and healthy exchange-traded fund (ETF) inflows were the driving forces behind gold demand throughout the first half of 2019,” WGC said.

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The growth in H1 jewellery demand was largely the product of a more positive environment for Indian consumers, according to WGC’s Q2 Gold Demand Trends report.

Shifts in bar and coin investment were very much price-related as the gold price powered its way to multi-year highs, profit-taking kicked in and retail investment all but dried up.

The technology sector reduced its usage of gold due to challenging global conditions, although the outlook is for this element of demand to establish something of a floor over coming quarters. Solid growth in both mine production and recycling fed into a two per
cent increase in total H1 gold supply.

Central banks bought 224.4 tonnes of gold in Q2 2019. This took H1 buying to 374.1 tonnes — the largest net H1 increase in global gold reserves in WGC’s 19-year quarterly data series. Buying was again spread across a diverse range of — largely emerging market — countries.

Holdings of gold-backed ETFs grew 67.2 tonnes in Q2 to a six-year high of 2,548 tonnes. The main factors driving inflows into the sector were continued geopolitical instability, an expectation of lower interest rates and the rallying gold price in June.

“A strong recovery in India’s jewellery market pushed demand in Q2 up 12 per cent to 168.8 tonnes. A busy wedding season and healthy festival sales boosted demand before the June price rise brought it to a virtual standstill. Indian demand drove global jewellery demand 2 per cent higher year-on-year to 531.7 tonnes,” said the report.

Bar and coin investment in Q2 sank 12 per cent to 218.6 tonnes. Combined with the soft Q1 number, the H1 total ended at a ten-year low of 476.9 tonnes. A 29 per cent year-on-year drop in China accounted for much of the global Q2 decline.

Gold supply grew six per cent in Q2 to 1,186.7 tonnes. A record 882.6 tonnes for Q2 gold mine production and a nine per cent jump in recycling to 314.6 tonnes — boosted by the sharp June gold price rally — led the growth in supply. H1 supply reached 2,323.9 tonnes — the highest since 2016.

Gold prices shot to multi-year highs. The gold price broke through 1,400 dollars per ounce for the first time since 2013. Among the factors driving this rally were expectations of lower interest rates and political uncertainty, with further support coming from strong central bank buying.

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