First quarter gold rally highest in 30 years: WGC

The enthusiasm with which investors renewed their appetite for gold ETFs in Q1 saw prices of the yellow metal (in US dollar terms) rally 17 per cent in the global market in the first quarter of calendar year 2016 (CY16), says the latest report of World Gold Council. Gold closed the quarter at $1,237/oz, 17 per cent above the end-2015 price of $1,060/oz. Gold demand, on the other hand, grew 21 per cent to 1,289.8 tonnes — the strongest Q1 on record. Inflow into gold exchange traded funds (ETFs) at 363.7 tonnes in the first quarter of CY16 also hit a seven-year high. Uncertainty created by negative interest rate policies implemented by central banks in Japan and Europe; China’s devaluation of the yuan fuelled fears over the country’s economic health and the potential impact on global growth; and a likely slowdown in the pace of US interest rate rises are the key reasons why investors, according to WGC, have seen an improvement in sentiment towards gold. “Having seen regular — and at times substantial — outflows over the last three years, ETFs had a stand-out quarter as gold’s investment qualities came back into sharp focus. Inflows reached a seven-year high, close to levels last seen during the Great Recession when the sovereign debt crisis was also in full swing. Gold found favour for its role as an effective risk diversifier, enhanced by its added benefits of liquidity and relatively low volatility,” the report says. Inflows were global and not restricted to dominant Western markets. This, according to the WGC, was the best performance in almost three decades and gold ranked as one of the best performing assets globally during the quarter. “The effect was also felt in the price of gold measured in other currencies, with double digit gains in the euro (+11 per cent), British pound (+20 per cent), Chinese renminbi (+16 per cent), Indian rupee (+17 per cent) and Turkish lira (+13 per cent),” the report says.

INVESTMENT DEMAND

Global investment demand also hit a seven-year high of 617.6 tonnes in the first quarter of the year with ETFs being the main driver of this growth, says the report. This was 122 per cent higher, compared with 277.9 tonnes of investment in Q1 2015, and the second-highest quarterly total on record. Jewellery demand globally, on the other hand, dipped 19 per cent year-on-year to 481.9 tonnes, 115 tonnes below last year’s 596.9 tonnes in the same period. The vast majority of the decline was generated by just two markets — India and China. Q1 2016 saw Indian jewellery demand hit a seven-year low of 88.4 tonnes, a 41 per cent year-on-year decline.