August 14, 2014 / 4:00 AM / in 3 years

Gold demand falls in Q2 as jewellery, bar sales slide-WGC

* Demand falls 16 pct in Q2
    * Selling of gold exchange-traded funds eases off
    * Chinese investment demand falls to 4-year low

    By Jan Harvey
    LONDON, Aug 14 (Reuters) - Global gold demand fell in the
second quarter, the World Gold Council said on Thursday, as a
plunge in jewellery, coin and bar sales from last year's record
levels outweighed lower liquidation of gold-backed
exchange-traded funds.
    Demand fell 16 percent in the April to June period to 964
tonnes, with jewellery offtake, the largest single segment of
gold demand, down 30 percent, while coin and bar buying tumbled
56 percent. 
    Selling from gold-backed ETFs, which helped balance the
market during last year's buying frenzy, eased off to 39.9
tonnes however, from 402.2 tonnes in the second quarter of 2013.
Demand for physical gold surged in that period after gold prices
slid by nearly a quarter.
    The last quarter's weakness is likely to set the gold market
up for a full-year demand drop, albeit by a smaller degree than
seen so far this year, the WGC's managing director for
investment, Marcus Grubb, said. 
    "Overall, we think that with Diwali coming (an auspicious
time to buy gold in India), stocking for Chinese New Year, and
the bad comparison falling away from the second quarter, you are
going to see a better picture develop in these figures later in
the year... though it will still be a lower year than last
year," he said.
    China and India between them accounted for over half of the
year-on-year decline in bar and coin demand, the WGC said.
Indian bar and coin investment, which has been curbed by import
restrictions this year, fell by two-thirds to less than 50
tonnes, while jewellery sales were down 18 percent.
    In the full year, Indian demand is expected to decline to
850-900 tonnes, Grubb said, while buying in China, the world's
largest gold market, is seen falling to 900-1,000 tonnes.
    Chinese bar and coin demand fell 64 percent in the second
quarter, while jewellery demand was down 45 percent from last
year's record levels. 
    Overall Chinese investment demand fell to a near four-year
low, with price-sensitive investors put off by a lack of price
volatility, the WGC said. A crackdown on bribery and corruption
also discouraged purchases of luxury gifts. 
    In a rare bright spot, U.S. jewellery demand grew
year-on-year for a fifth consecutive quarter, by 15 percent to
26.1 tonnes. "Economic recovery in western markets is starting
to benefit jewellery demand," Grubb said. 
    Central banks also bought gold for a 14th straight quarter,
with acquisitions up 28 percent in the second quarter to nearly
118 tonnes. Emerging markets were the biggest buyers,
particularly Russia, Kazakhstan and Tajikistan.   
    Mine production rose 4 percent in the second quarter, and is
set to hit another record high this year after peaking at
3,038.5 tonnes in 2013.
    "On the basis that the first half is 5-6 percent up on last
year, even with a flattening trend in the second half, you'll
probably see a small increase this year on 2013," Grubb said.
    "But that is likely to represent peak mine production, given
the re-calibration we've seen in the industry over the last 18
    Net hedging by producers -- selling forward unmined output
to lock in prices -- reached 50 tonnes in Q2, the highest since
the first quarter of 2001. That is due overwhelmingly to a
single hedge announced by Polyus Gold in early July.
    "It's our view that that hedge was very much project-based
and financing-based, and that you're not seeing a return to
hedging," Grubb added. "This is against the trend."
    Heavy gold hedging in the 1990s was a major factor keeping
prices at lower levels.
                           Q2 2013    Q2 2014
 Jewellery consumption         726.7     509.6
 Technology                    103.8     101.0
 Bars and coins                627.9     275.3
 ETFs and similar             -402.2     -39.9
 Central banks                  92.1     117.8
 TOTAL                      1,148.30     963.8
                           Q2 2013    Q2 2014
 Mine production               734.1     765.3
 Net hedging                   -15.1      50.0
 Scrap                         260.7     262.7
 TOTAL                         979.7    1078.0
    Source:  Gold Demand Trends Q2 2014, World Gold
Council/Thomson Reuters GFMS

 (Editing by Keiron Henderson)

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