Gold loses lus­ter as de­mand drops

Yel­low metal un­likely to match stel­lar per­for­mance of 2013, says WGC

China Daily (Canada) - - BUSINESS - ByWUYIYAO in Shang­hai wuyiyao@chi­nadaily.com.cn

Global gold de­mand de­clined sharply in the sec­ond quar­ter of the year as Chi­nese and In­dian buy­ers pur­chased less jew­elry than a year ago, the World Gold Coun­cil said on Thurs­day.

Ac­cord­ing to the WGC, global gold de­mand dur­ing the sec­ond quar­ter of 2014 was 964 met­ric tons, a 16 per­cent year-on-year drop. The WGC said the full-year re­sults would be much lower than in 2013.

The sig­nif­i­cant drop in the year-on-year de­mand is not “un­sur­pris­ing”, as the gold boom in 2013 was an ex­cep­tional case, theWGC­said, adding that it would be dif­fi­cult for the 2014 num­bers to sur­pass the 2013 lev­els.

Global jew­elry de­mand, which rep­re­sents more than half of to­tal global de­mand, fell 30 per­cent year-on-year to 510met­ric tons. How­ever, jew­elry de­mand dur­ing the sec­ond quar­ter was 11 per­cent higher than in the sec­ond quar­ter of 2012, ex­tend­ing the broad up­ward trend ev­i­dent since 2009, theWGC­said.

“Year-on-year com­par­isons were af­fected by the surge in de­mand seen in the sec­ond quar­ter of 2013. How­ever, de­mand still re­mains in line with the five-year av­er­age,” the re­port said.

Al­bert Cheng, man­ag­ing direc­tor fortheFarEas­tatWGC said: “We ex­pect 2014 to be a year of con­sol­i­da­tion as shown by this quar­ter’s re­sults. The sud­den price drop in 2013 meant­manyChi­ne­se­andAsian con­sumers brought for­ward jew­elry and bar pur­chases.”

Mar­cus Grubb, man­ag­ing direc­tor of In­vest­ment Strat­egy at the World Gold Coun­cil, said that com­pared with an ex­cep­tional 2013, when the mar­ket saw record con­sumer buy­ing and in­vestor sell-offs, the quar­terly trend in 2014 demon­strates a re­turn to the long-term trends. “It il­lus­trates the uniquely bal­anced na­ture of the gold mar­ket,” he said.

In Shen­zhen, one of China’s jew­elry whole­sale hubs, many dis­play cen­ters and gold jew­elry fac­to­ries shut shop in the first two quar­ters of 2014 as de­mand ta­pered off. Most of these firms shifted to other busi­nesses, which is nat­u­ral as only the strong com­pa­nies and big brands will be able to with­stand the mar­ket up­heavals, said in­dus­try ex­perts.

“Jew­elry con­sumers con­tin­ued to di­gest the ex­cep­tional pur­chases of 2013 and in­vestors also re­bal­anced, pulling back from the ex­tremes we saw last year. Over­all the gold mar­ket is sta­bi­liz­ing fol­low­ing the ex­tra­or­di­nary con­di­tions we sawin 2013,” Grubb said.

To­tal in­vest­ment de­mand (com­bined in­vest­ment in bars and coins and ex­change traded funds) moved up by 4 per­cent to 235 met­ric tons dur­ing the sec­ond quar­ter. Gold prices moved in a nar­row side­ways range for much of the sec­ond quar­ter this year, mark­ing a sub­dued en­vi­ron­ment for in­vestors. Con­se­quently, bar and coin de­mand saw a sig­nif­i­cant re­duc­tion from the record highs in 2013 Q2even as out­flows fromETFs slowed, theWGCre­port said.

From a global per­spec­tive, the gold de­mand trends show that the fo­cus is now mov­ing from theWest to the East, or in other words, from the US and Europe to Asia.

“The de­vel­op­ments in the gold mar­ket in both China (Shang­hai) Pilot Free Trade Zone and the Sin­ga­pore Gold Hub in 2014 are a fur­ther tes­ta­ment to the trend that the world’s gold de­mand is mov­ing from theWest to the East,” said Cheng from WGC.

Although geopo­lit­i­cal con­di­tions may im­pact the short­term gold price, in the long run, prices de­pend on sup­ply and de­mand, said ex­perts.

Yang Fei, Shang­hai-based gold in­vest­ment an­a­lyst said that although gold is seen as a fi­nan­cial prod­uct, it is also a com­mod­ity and as such its prices de­pend on de­mand.

“In­vestors keep gold in their port­fo­lios to hedge against risks from cur­rency fluc­tu­a­tions and cap­i­tal mar­ket volatil­ity”, said Yang.

GOLD DE­MAND

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