ETPs Continue to Drive Gold Demand in Q3 2016

Somasundaram PR
Somasundaram PR

Mumbai: Global gold demand reached 993 tonnes (t) in the third quarter of 2016, a fall of 10% compared to the same period last year, according to the World Gold Council’s (WGC) latest Gold Demand Trends report. Net inflows into Exchange-traded products (ETPs) helped drive a sharp increase in investment demand, but this was not enough to offset falls in other areas, notably jewellery and purchases by central banks.

Total investment demand rose 44% to 336t, with ETP inflows accounting for 146t, as investors continued to build up their strategic allocations to gold. The third successive quarter of inflows into ETPs – which were dominated by European funds – were predominantly driven by ongoing economic and geopolitical uncertainty, ahead of the US election [today] and in Europe post the Brexit referendum decision, and in advance of various European elections next year. These flows were further supported by relatively expensive equity valuations and low-yielding sovereign bonds. By contrast, bar and coin demand totalled 190t in Q3, down 36% year-on-year.

Mr. Alistair Hewitt, Head of Market Intelligence at the WGC, commented, “We continued to see flows into gold-backed ETPs in Q3, taking year-to-date inflows at the end of September to 725t. Institutional investors have looked to hedge against uncertainty stemming from geopolitical risk, including Brexit, the US Presidential race and the potential impact of elections in France and Germany next year. In addition, negative interest rates – a theme ever present this year – continued to underpin institutional demand.”

India & China:

Both China and India, the world’s leading gold markets, experienced a drop-in consumer demand this quarter, of 22% and 28% respectively. In China, ongoing economic uncertainty contributed to a softening in sentiment towards the precious metal, which was magnified by high gold prices and changing consumer behaviour. In India, more stringent government policies, high gold prices and a squeeze on disposable rural incomes combined to dampen consumer sentiment. These were key factors in total jewellery demand falling 21% year-on-year to 493t.

India’s demand for gold in the third quarter (July-September) dropped by 28 per cent to 194.8 tonnes, the WGC said in its report on Tuesday.

The Indian demand was around 271.1 tonnes during the corresponding quarter in 2015.

In terms of value, India’s Q3 2016 gold demand was Rs. 55,970 crore, a drop of 12 per cent compared to the similar quarter in 2015 when it stood at Rs. 63,660 crore.

“While an elevated price level was an obvious factor for the drop in volume, other issues appear to have had an impact on demand — such as the trade strike following the introduction of excise duty, the regulation on PAN card for purchases above Rs. 2 lakhs and the subdued sentiment on gold buying when the income disclosure scheme was running,” said Mr. Somasundaram PR, Managing Director, India, WGC.

The WGC has projected the full year demand to be in the range of 650-750 tonnes.

“Good monsoon and a drop in the gold price ahead of Diwali augur well for strong seasonal demand in Q4 that will likely restore the demand trajectory to normal levels,” Mr. Somasundaram said.

Total jewellery demand in India for third quarter of 2016 was down by 28 per cent at 154.7 tonnes. Also, total gold investment demand for the quarter under review fell by 30 per cent at 40.1 tonnes.

Globally, gold demand reached 993 tonnes in the third quarter of 2016, 10 per cent less than in the similar period in 2015.

“Net inflows into Exchange-traded products (ETPs) helped drive a sharp increase in investment demand, but this was not enough to offset falls in other areas, notably jewellery and purchases by central banks,” the statement said.

Mr. Alistair Hewitt added, “The core physical markets of India and China continued to suffer under high prices and squeezed incomes in Q3, but it looks like Q4 may be better. Price expectations have always been a key trigger for gold purchases and consumers responded quickly to the price drop in early October. And in the case of India, the first healthy monsoon in three years will boost rural incomes, supporting demand during the festive and wedding season.”

Total mine supply reached 832t this quarter, down 4% from the 866t seen in the same quarter last year. The relative stability can be attributed to the cost cutting programmes that have been a feature over the past few years. The rising gold price also encouraged consumers to recycle their gold, generating more than 341t of supply this quarter, up 30% on the same period last year. This was particularly prevalent in India, where consumers cashed in their holdings, swelling the amount of recycled gold in the region to 39t, its highest level since Q4 2012.

The key findings included in the Gold Demand Trends Q3 2016 report are as follows:

  • Overall demand for Q3 2016 was 993t, a fall of 10% compared to 1,105t in the same period last year
  • Total consumer demand for Q3 2016 fell 26% to 683t from 917t in the same quarter last year
  • Total investment demand grew 44% to 336t this quarter compared to 232t last year
  • Global jewellery demand was down 21% at 493t, compared with 622t in the same period last year
  • Central bank demand reached 82t this quarter, compared with 168t in the same period last year
  • Demand in the technology sector was virtually flat year-on-year, down just 1% to 82t
  • Total supply grew by 4% to 1,173t this quarter from 1,127t in the third quarter of last year. This was largely driven by recycling, which increased 30% to 341t, from 262t in the same period last year.