WGC: Gold demand surges 21% in the first quarter

LONDON: Gold demand surged to the second-highest level ever as investors piled into funds, doubling investment in the metal.

Global demand in the first quarter climbed 21% from a year earlier to 1,289.8 metric tonnes, the World Gold Council said in a report yesterday. That’s second only to the final quarter of 2012 in data going back to 2000.

Still, jewellery buying slid 19% amid a strike by jewellers in India and as higher prices deterred buying.

Gold prices jumped 16% in the quarter, the most in three decades, even as demand slowed in India and China, the biggest consumers. Investors piled into bullion-backed exchange-traded products amid volatile equity markets, while the outlook for low US borrowing costs and negative rates in some other countries also boosted demand for a store of wealth.

“It’s been a pretty good start to the year,” Alistair Hewitt, the head of market intelligence at the London-based council, said by phone. “You have very clear and visible strength in institutional demand, but at the same time, you have core markets facing significant headwinds.”

ETP holdings rose by 300.7 tonnes in the three months through March 31, compared with 22.8 tonnes a year earlier, data compiled by Bloomberg showed. Total bar and coin demand was little changed in the period, the council said.

Total Indian purchases plunged 39% to 116.5 tonnes as jewellers protested against an excise tax, while Chinese demand dropped 12% to 241.3 tonnes. Higher prices, as well as economic uncertainty in China, prompted consumers to delay buying, the council said.

Purchases should accelerate later this year, probably pushing annual demand to 850 to 950 tonnes in India and 900 to 1,000 tonnes in China, Hewitt said.

“There will certainly be some rebound in demand but it will be in the second half, primarily in the fourth quarter for the Diwali festival,’’ P.R. Somasundaram, the council’s managing director for India, said by phone.

In China, investment demand will continue to grow strongly as investors seek a haven from volatility in stocks and bonds, according to Roland Wang, China director at the council.

Goldman Sachs Group I nc and Singapore-based Oversea-Chinese Banking Corp beefed up their price forecasts this week, though both said there were still bearish. Goldman predicts $1,150 an ounce in 12 months, while OCBC sees $1,200 by the end of the year. Bullion traded at about $1,272 yesterday.

While central banks were net buyers of the metal for a 21st straight quarter, the 109.4 tonnes added to reserves was 3% less than a year earlier.

Nations are expected to buy 400 to 600 tonnes this year, compared with 566.3 t onnes i n 2015, according t o Hewitt.