5 Highlights from the World Gold Council’s Q1 Demand Trends Report

The World Gold Council’s (WGC) Gold Demand Trends report for Q1 2017 is now out, and it shows that global gold demand fell 18 percent year-on-year to come in at 1,034.5 tonnes. 
That’s a big fall, but as the WGC points out, Q1 2016 was the strongest ever quarter for gold demand. “Demand is down year-on-year, but that is largely because Q1 last year was exceptionally high,” said Alistair Hewitt, head of market intelligence at the WGC.
Overall, ETF inflows were “solid,” physical gold investment was up and jewelry demand was steady; meanwhile, central banks did less buying than they have in the past. Read on to learn more about what the WGC says in the report.

1. ETF inflows were “solid,” but down year-on-year

Global inflows into gold-backed ETFs and similar products came to 109.1 tonnes in Q1, about one-third the amount seen in the first quarter of 2016. Again, while that’s a dramatic decline, the WGC offers some perspective: “this is more an indication of the atypical strength of 2016 inflows than of recent weakness. Indeed, inflows of 109.1t are in line with quarterly average between Q1 2009 and Q4 2011.”

The group also notes that European investors accounted for most ETF inflows in Q1, a trend that began in the second half of 2016. In total, inflows into European-listed ETFs came to 92.4 tonnes, while US-listed ETFs added only 14.1 tonnes. The difference may be due to the fact that European investors are currently facing more geopolitical concerns than US investors.

2. Investment in gold bars and coins was up

Bar and coin demand rose 9 percent year-on-year to come in at 289.8 tonnes, which is equivalent to more than $11 billion. According to the WGC, demand from Chinese investors largely drove that increase — Chinese demand for gold bars and coins came in at 105.9 tonnes during the period, up 30 percent from the year-ago period.
“Several factors fuelled this boom,” says the WGC. “Concerns over the weakness of the yuan and the outlook for the real estate market from the tail-end of last year spilled over into 2017; this combined with the usual seasonal strength around Chinese New Year and a rising gold price to support investor sentiment.” Additionally, new innovations are making it easier for retail investors to get into the market.

3. Jewelry demand was steady

In Q1, jewelry demand clocked in at 480.9 tonnes, marginally higher than the amount seen in Q1 2016. However, the WGC notes that despite that small increase, jewelry demand remains soft. “Q1 2016’s 474.4t was a seven-year low,” the organization points out. It also states that while demand remained fairly flat overall, there were variances at the country level, with gains concentrated in India, Iran and the US.

4. Central banks bought less gold

Central bank demand for gold dropped to 76.3 tonnes in Q1, down 27 percent from 104.1 tonnes in the year-ago period. That’s also almost one-third lower than the 108.5 tonnes seen in the fourth quarter of 2016. The WGC anticipates that central bank gold demand will remain low throughout the year, and notes that central banks have been buying less gold since mid-2014.

5. Gold supply “contracted sharply”

The WGC’s report focuses largely on gold demand, but does include a section on supply as well. While mine production was “little changed” from Q1 2016, clocking in at 764 tonnes, overall supply sank 12 percent and came in at 1,032 tonnes. The drop was reportedly the result of a fall in recycled supply — it came in at 283 tonnes, 21 percent down from Q1 2016’s 360 tonnes.
“The steep y-o-y decline is largely due to recycling having jumped in Q1 2016 in response to sharply rising gold prices at that time. At 283.0 tonnes, recycling is below its long-run average (since Q1 2000) of 296.2 tonnes,” says the WGC.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.