* Q2 drop in demand first in eight years - GFMS
* Consumers more "rational" about gold purchases
* Lower premiums, weaker yuan also hurt demand
By A. Ananthalakshmi and Jan Harvey
SINGAPORE/LONDON, July 31 Chinese gold jewellery
demand fell for the first time in eight years in the second
quarter and could drop as much as 20 percent in the full year, a
leading precious metals consultancy said.
A slide in Chinese demand will take away a key supporting
factor for gold prices, already pressured by an improving
global economy and U.S. stimulus withdrawal.
Many Chinese jewellery makers saw a 40-60 percent drop in
gold fabrication in the second quarter, Sara Zhao, a GFMS
analyst at Thomson Reuters, told the Reuters Global Gold Forum
Other industry sources also said higher gold prices and a
weaker yuan are weighing on demand, and fresh buying has also
been tempered by last year's record purchases.
Jewellery demand - the biggest segment of Chinese gold
consumption - fell significantly in the April-June period, the
first year-on-year drop since the second quarter of 2006, Zhao
"Consumers have become more rational on gold purchases," she
said. "Unless there is a significant turnaround in the second
half, demand looks set to fall well short of the record levels
witnessed in 2013."
The second quarter drop is in contrast to huge purchases in
the same period last year, when sharp price declines in April
and June caused a mad rush for gold jewellery, bars and coins.
Gold prices fell 28 percent last year after a 12-year bull run.
"The prices are not low enough this time around," said one
dealer in Hong Kong, which serves as the main gold conduit for
China. "With the yuan also weak, there is no reason for the
Chinese to rush to buy gold."
"They anticipate prices (will) fall further, and could come
back to the market if prices fall below $1,200 an ounce."
Gold has risen about 7 percent this year, but the
strong gains of the first quarter have dwindled as the year has
worn on. Prices are currently just below $1,300.
LOWER PREMIUMS, IMPORTS
China imported over 1,000 tonnes of gold last year from Hong
Kong alone, overtaking India as the biggest buyer. Imports so
far this year have slid 14 percent, though the second-quarter
drop was a significant 45 percent.
Banks are reluctant to bring in more gold into the country
when a weak yuan and lower premiums would force them to take
losses on any sales, sources at bullion banks said.
Premiums - the differential between local prices and the
global benchmark - have largely been at discounts or on par with
global rates this year.
"The imports have fallen recently because the arbitrage
opportunity isn't there," said one trader.
Weakness in demand jewellery and investment demand has also
weighed on imports.
GFMS' Zhao said third-quarter imports will likely be similar
to the 45 percent slide in the preceding quarter, while the
fourth quarter could see a small uptick ahead of the Chinese New
(Editing by William Hardy)