Gold demand declines, despite european boost

Photo: Bullion Vault

Demand for gold from investors has declined this year, despite a boost in appeal from the European financial crisis.

Demand for gold declined 12 per cent year-on-year in the second quarter of 2015 to 914.9t, according to new figures from the World Gold Council. On a half-yearly basis, global demand was 6 per cent down at 1998.9t.

The main falls occurred in India and China, with decreasing cosumer demand in both markets making up almost half of the global decline. Slowing economic growth affected Chinese sentiment, with demand shrinking 5 per cent to 174.4t in Q2 2015. Slowing GDP growth and stock market volatility have weakened consumer sentiment, which had negative implications for gold demand.

Gold exploration/development activity also continues to decline. The Pipeline Activity Index from SNL Metals & Mining shows a three-year decline in exploration and development activity by gold miners, who have been squeezed by lower gold prices and stubbornly high costs.

Demand in Europe, though, increased, bolstered by growing uncertainty surrounding a possible Grexit. It was fuelled by rising interest from Germany, Austria and Switzerland. Demand for Bars and coins grew 19 per cent year-on-year to 46.5t and investment in European ETFs increased by 6.6 tonnes (t) during the second quarter.

Overall, though, gold's attractiveness as an asset has declined. Gold prices were largely directionless between March and June, which was both the cause and effect of weak demand. In US dollar terms, gold traded within a narrow  US$70 range. Volatility was just 13 per cent, compared with its 5-year average of 18 per cent. Such sideways price movement meant that consumers in a number of markets were discouraged from buying gold as they were uncertain as to whether there would be an opportunity to buy at lower levels.

Nonetheless, the outlook for the second half of the year is more optimistic; there are signs that the recent drop in the gold price has sparked a revival in demand since the end of June.