Yesterday the World Gold Council (WGC) published a new edition of its quarterly report on gold demand. What does Gold Demand Trends Q1 2015 say about the demand for gold in the first quarter of 2015?

The headline news is that the global demand dipped by 1 percent compared to the first quarter of 2014, to 1,079 tons. This drop was caused mainly by a 3 percent decrease in jewelry demand. The largest decline came from China (10 percent down). Chinese demand for gold jewelry fell due to a few factors. First, slowing economic growth impacted consumer sentiment. Second, the U.S. appreciation led to higher gold prices in local currency terms. Third, rallying domestic equity markets diverted consumers’ attention from gold to the stock market. However, investors should remember that the first quarter of 2014 was a record quarter for Chinese jewelry demand (236 tons) making it a very high benchmark for comparison, and that Chinese jewelry demand in Q1 2015 exceeded its five-year quarterly average by 27 percent. On the other hand, jewelry demand in India rose by a staggering 22 percent, partially because of the removal of import restrictions at the end of the year. Also the U.S. and the UK jewelry demand increased in Q1. Actually, the jewelry demand excluding China grew 1 percent year-on-year.

So much for jewelry demand. Let’s move on to the more interesting for us investment demand, which increased by 4 percent in Q1 year-on-year to 278.8 tons. This rise was driven by the ETF inflows. It is good news, since Q1 was the first quarter of positive net purchases since Q4 2012. The ETFs received 25.7 tons after 184 tons fled in 2014, which can reflect a shift in investor sentiment. The improvement in demand for ETFs outweighed a contraction in bar and coin investment by 10 percent.

Let’s briefly analyze other categories. Central banks and other official institutions remained committed buyers, however, their purchases were virtually unchanged compared to the same period in 2014. They bought 119.4 tons, mostly in order to diversify their reserves. Technology demand declined further by 2 percent, reflecting a longer-term substitution trend. Supply was little changed as lower recycling counterbalanced growth in mine supply.

Based on recent trends, what is the outlook for the gold? According to the WGG, the small decline in gold demand demonstrates that the market is finding some stability. One quarter of inflows into ETFs does not mean the beginning of a new trend; however, taking into account data on April flows, we can say that the Western investors’ attitudes towards gold turned more benign. Gold’s future performance will depend, to a large extent, on the U.S. dollar behavior and the developments in the Chinese and U.S. stock markets.

To sum up, the global demand for gold dipped by one percent in the first quarter of 2015 year-on-year, however, it rose on a quarterly basis. The decline resulted from weak Chinese jewelry demand, but total investment demand increased by 4 percent driven by the positive flows into the ETFs. Therefore, it seems that the gold market stabilized and the Western investors’ sentiment toward gold changed to be more positive.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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