Gold investment nearly halved in the first quarter as a brighter view of the US economy prompted investors in the West to favour other assets like stocks over bullion, the World Gold Council said on Thursday.
Overall gold demand fell 13 percent to a three-year low of 963 tonnes in the last quarter as rising jewellery demand and strong appetite for coins and bars failed to offset a sharp drop in investment, chiefly in Exchange-Traded Funds.
These investment vehicles, which issue securities backed by physical metal, have proved a popular way to gain exposure to the gold price since the start of the financial crisis, but saw record outflows in the first quarter.
Also Read: Gold dips for 6th session in longest losing streak in 4 yrsRecord Chinese demand for jewellery, coins and bars, contributing to an extra 60 tonnes of jewellery demand and 35 tonnes of bar and coin offtake worldwide still fell well short of counter-balancing a 195-tonne drop in investment. The fall in financial flows into the metal included a 177-tonne outflow from ETFs.
The WGC's managing director for investment, Marcus Grubb, said he expected investment levels to stabilise over the year as a whole, and for rising interest in physical gold to lead to more stable demand in the full year.
"What you've seen is a near-term readjustment to more positive views on the US since December," he said. "You're unlikely to see the same level of selling in the rest of the year unless you get a rampant and sustainable recovery in the US, which I don't think is on the cards.
"Meanwhile the gold heads east, because if people are selling the ETFs in the United States and to some degree in Europe, consumers in India and China, and bar and coin investors around the world, are buying that gold."
Chinese demand hits record
Chinese coin and bar demand hit a quarterly record of 109.5 tonnes in the first quarter, up 22 percent. India saw the biggest overall rise in bar and coin investment, with demand up 52 percent to 97 tonnes.
US buying also rose by 43 percent to 20.1 tonnes, while European demand fell 28 percent to 47.5 tonnes. Buying of small investment products like bars and coins rose 10 percent overall to 377.7 tonnes in the first quarter, the WGC said.
Jewellery buying was the sector showing the most strength, with offtake up 12 percent to 551 tonnes. China led the rise, with consumption rising 19 percent year on year to a record 185 tonnes, while Indian buying rose 15 percent to 159.5 tonnes.
"These figures show that notwithstanding the slowdown in China that we've seen, this was a very strong quarter, and all the evidence in Q2 so far is that it (demand) remained very strong in April as a result of the price fall," Grubb said.
