World gold demand, as assessed by consultancy Metals Focus on behalf of the World Gold Council (WGC), rose 21% as investors surged into gold ETFs.  Key figures on global demand and supply for the quarter as released by the WGC are set out below:

According to the WGC figures, global gold demand reached 1,290 tonnes in the first quarter of  2016, a 21% increase compared to the same period last year, making it the second largest quarter on record. This increase was driven by huge inflows into exchange traded funds (ETFs), fuelled by investor concerns regarding economic fragility and an uncertain financial landscape. It was all the more remarkable in that Asian demand, primarily from China and India, has been weak so far this year. thus, global demand for jewellery was down 19%, as higher prices and industrial action in India and a softening of the economy in China meant many consumers delayed making purchases.

Inflows into ETFs totalled a massive  364 tonnes in the quarter – the highest quarterly level since Q1 2009 – and compares with 26 tonnes in Q1 a year ago. The WGC reckons that gold found favour as a risk diversifier due to the negative interest rate environment in Europe and Japan, combined with uncertainty over the Chinese economy, anticipation of slower interest rate rises in the US and global stock market turmoil.

Total bar and coin demand, even in Asia,  was stronger by some 254 tonnes, marginally higher than the same period last year. Weakness in price sensitive markets was offset by strength elsewhere with 5% growth in China (62 tonnes) and strong demand in the US and the UK, which grew by 55% and 61% respectively. In total, investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year, igniting a rally in the gold price which appreciated by 17% in dollar terms during the quarter.

This strong investment performance was not reflected in the bigger jewellery sector though, with demand levels sharply down in India and China. While both countries had a slow start to the year as a result of consumer uncertainty and rising gold prices, the situation was greatly exacerbated by the industrial action in India.

Central banks remained strong buyers, purchasing 109 tonnes in the quarter. This represents the 21st consecutive quarter that central banks have been net purchasers of gold as they continue to diversify away from the US dollar.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said: “Two major themes emerged in the first quarter of 2016. Spurred on by the uncertainty raised by negative interest rates, the investment sector was the dominant driver of gold demand, helping to push prices up 17% over the course of the quarter, as ETF inflows swelled. Conversely, jewellery demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42 day strike by jewellers in India. But we believe Indian demand has simply been postponed, with buying likely to increase for Akshaya Tritiya [Akshaya Tritya demand, which was a few days ago, turned out to be disappointing] and the wedding season.

“Looking ahead we anticipate that ongoing market uncertainty and unconventional monetary policies will continue to support both investment and central bank demand. This, combined with an expected recovery in India, should see gold demand remain healthy over the course of 2016.”

Total supply for Q1 2016 saw an increase of 5% to 1,135 tonnes compared with 1,081 tonnes in the first quarter of 2015. Increased hedging of 40 tonnes, coupled with slightly higher mine production of 734 tonnes (729 tonnes in Q1 2015), outweighed a marginal decline in recycling.

The key findings from the report for Q1 2016 are as follows:

  • Overall demand for Q1 2016 increased by 21% to 1,290 tonnes, up from 1,070 tonnes in Q1 2015.
  • Total consumer demand was 736 tonnes down 13% compared to 849 tonnes in Q1 2015.
  • Global investment demand was 618 tonnes, up 122% from 278 tonnes in the same period last year.
  • Global jewellery demand fell 19% to 482 tonnes versus 597 tonnes in the first quarter of 2015.
  • Central bank demand dipped slightly to 109 tonnes in Q1 2016, compared to 112 tonnes in the same period last year.
  • Demand in the technology sector fell 3% to 81 tonnes in Q1 2016.
  • Total supply was up 5% to 1,135 tonnes in Q1 2016, from 1,081 tonnes in the first quarter of 2015. Mine supply was up 8% to 774 tonnes.