According to the World Gold Council's latest report on Global Gold Trends, demand for the yellow metal in the first three months of 2019 is up by 7%. Demand in January, February and March has been pegged at a whopping 1,053.3 tonnes. According to the agency, this is the highest Gold demand witnessed in any Q1 in the past four years.
This increase has been mainly attributed to brisk Gold buying from central banks and growth in gold-backed exchange traded funds (ETFs).
Central banks bought 145.5 tonnes of gold in Q1, up 68 per cent as compared to the corresponding period in 2018 and represents the strongest start to a year since 2013. Diversification and a desire for safe, liquid assets were again the main drivers of such purchase action.
ETFs and similar products added 40.3 tonnes in Q1, up 49 per cent on last year. Funds listed in the United States and Europe benefitted from the largest inflows, "although the former was more erratic while the latter was underpinned by continued geopolitical instability."
On a rolling four-quarter basis, physical gold buying reached a record high for our series of 715.7 tonnes, said the WGC. Of this, demand for gold jewellery marginally grew to 530.3 tonnes in Q1, worth US$22.2bn.
The total supply of gold was largely unchanged in Q1 at 1,150 tonnes. Modest growth in mine production and recycling was offset by a decline in net hedging. Mine production and recycling levels saw small increases compared with Q1 2018, rising to 852.4 tonnes and 287.6 tonnes, said WGC in its statement.
According to WGC, India was the primary driver of this growth. India's demand has been pegged at 125.4 tonnes, the highest Q1 since 2015. Speaking about other regions, the WGC report said, "demand in the US continued to expand, the pace of growth slowed as the prolonged government shutdown hit demand in January. The Middle East region saw a modest y-o-y recovery, although this is largely because demand in Q1 2018 was hit by the introduction of VAT in the UAE and Saudi Arabia. Iran was a notable exception, falling by 10%."
China, the world's biggest consumer of yellow metal saw demand shrinking by 2% in the first three months of 2019. Demand was pegged at 184.1 tonnes. India and China together consume a whopping 58.36% of the world's Gold demand.
"The beginning of 2019 saw a sharp recovery in investor sentiment in both the equity and debt markets, but appetite for gold remained solid," said Alistair Hewitt, WGC's Head of Market Intelligence.
Bar and coin investment softened slightly, down one per cent to 257.8 tonnes. This was purely due to a fall in demand for gold bars, as official gold coin buying grew 12 per cent to 56.1 tonnes. China and Japan were the main contributors to the decline.
In Japan, net investment turned negative on profit-taking following a surge in the local price in February.
Gold used in applications such as electronics, wireless and LED lighting fell three per cent to 79.3 tonnes. Trade frictions, sluggish sales of consumer electronics and global economic headwinds hit the technology sector.
"A lower local rupee gold price in late February and early March coincided with the traditional gold buying wedding season, lifting jewellery demand to 125.4 tonnes, a 5 per cent increase on the same period last year and the highest Q1 since 2015," said the agency.
The rise in Gold demand in India has been attributed to Wedding purchases and lower prices. The agency found demand for the first half of the quarter subdued; the month-long inauspicious period of Kharmas/Malmas ended in mid-January and was followed by a sharp rise in the local gold price, hitting Rs33,730/10g by the third week of Feb 1. "Prices then swiftly retreated, falling to Rs32,000/10g by the first week of March, and consumers took advantage of the correction, rushing to make wedding-related purchases and pushing the local price to a premium," added WGC.
[The period of Kharmas (also knowns as Malmas) is an inauspicious period in the Hindu calendar followed in North India.]
Also, there were higher auspicious days in 2019 that helped boost wedding-related demand. For the record, there were 21 auspicious wedding days in the Hindu calendar during Q1 2019 – three times that of Q1 2018.
Another notable factor that helped boost demand was retail promotions. Besides promotional activities and campaigns such as discounts on jewellery-making charges, retailers also promoted lower carat (14c) products such as lightweight jewellery to target young consumers.
The agency believes that the arrival of Akshaya Tritiya on May 7 and higher crop prices could increase demand further.
Beside Akshaya Tritiya, a number of festival days have been recorded between Q2-Q4. This suggests demand to further rise.
Here's a graph that suggests how good the demand could be in the days to come.
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