2014 Gold Demand So Far

Physical gold investment demand falls from record highs as central banks buy...

 

LIKE a magnet, gold prices continue to be attracted to the $1300 mark, writes Sumit Roy at Hard Assets Investor, unable to break free one way or the other.

 

It's impossible to know when this near-term consolidation phase will end, but the yellow metal is likely to move decisively when that happens. We continue to favor the upside, and indeed, latest supply and demand data from the World Gold Council seems to support that view.

 

In its latest Gold Demand Trends report, the World Gold Council said that global gold demand was essentially unchanged year-on-year in the first quarter of 2014 at 1,075 metric tonnes.

 

As always, the internals of the report are key. On the plus side, jewelry demand crept up by 3%, as lower prices made gold more affordable to consumers. But it was the investment segment of the market that was particularly interesting.

 

Overall demand from investors fell a marginal 2% to 282 metric tonnes in Jan-March compared with a year earlier. However, there was once again a huge divergence between physical gold bar and coin demand, and ETF demand.

 

Last year, demand in the physical side of the market spiked to record levels after gold prices plummeted. That offset huge, record outflows from exchange-traded funds. This year, physical demand was 39 percent lower than last year. With prices stable in 2014, there was less of a rush to buy, and demand subsequently fell from those record levels. Meanwhile, in contrast to last year's enormous selling, ETF flows were zero in Q1 2014 – neither adding nor subtracting from demand.

 

One key takeaway from the latest data was the continued buying by central banks. Slowly but steadily, they continue to add to their gold holdings, having purchased 122 metric tonnes in the first quarter of 2014.

 

Finally, overall gold supply rose 1% year-over-year in Q1 2014, as 6% year-over-year increase in mine production was nearly offset by a 13% reduction in recycled gold supply.

 

According to the World Gold Council, "growth in gold mine production was due to new operations either ramping-up or coming on-stream."