Gold demand at weakest in first quarter since 2008 financial crisis

Global demand for gold dropped between January and March, posting its weakest first quarter since the 2008 financial crisis, as the economic outlook improved while wild swings on world stock markets drove the price higher.

Demand for gold fell 7% on a year ago to 973.5 tonnes, according to the World Gold Council, which represents producers. It blamed the fall on a 15% slump in investment in gold bars to 254.9 tonnes as investors in China, Germany and the US held off from buying the precious metal.

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Only 32.4 tonnes of the precious metal flowed into gold-backed exchange-traded funds in the first quarter, a 66% fall on a year ago. Overall, gold investment fell 27%, cancelling out central bank purchases of gold and the increased use of the precious metal in smartphones and car electronics.

John Mulligan, the head of member and market relations at the World Gold Council, said investors “haven’t seen a trigger to buy into the market”.

There was a strong demand for gold in the first quarter of 2017 as investors responded to heightened political uncertainty but at the start of this year gold traded in a range of $1,300 to $1,350 an ounce as investors lacked a clear signal and were in “wait and see mode”.

The spot gold price rose to $1,323 at the end of March compared with $1,291 at the end of December and $1,244 at the end of March 2017.

Alistair Hewitt, head of market intelligence at the World Gold Council, pointed to relatively solid global economic growth and rising interest rates. Gold is traditionally seen as a safe-haven investment in times of turmoil.

The improving economic outlook contrasted with a sharp spike in stock market volatility. The Dow Jones industrial average hit a record high on 26 January, the last day of the Davos meeting of world leaders, but fears of higher interest rates and trade wars prompted a big sell-off on global stock markets in February, which in turn drove up gold prices.

Global demand for gold has its weakest first quarter since 2008 as prices rise

Dollars per troy ounce

LBMA Gold Price (US$/oz, PM)

1,100

1,150

1,200

1,250

1,300

1,350

Jan 2017

Mar

May

Jul

Sep

Nov

Jan 2018

Mar

Guardian Graphic | Source: World Gold Council

The global demand for jewellery was flat at 487.7 tonnes. In China, consumers bought more gold jewellery during the new year celebrations and the improving US economy led to more Americans splashing out on jewellery.

However, in India rising gold prices, exacerbated by a weakening rupee, led to a 12% decline in jewellery purchases. In addition, there were only seven auspicious wedding days in the first quarter of this year, compared with 22 a year earlier.

Central banks were strong buyers of gold. They added 116.5 tonnes of gold to their reserves, up 42% from a year earlier, led by Russia, Turkey and Kazakhstan. It was the highest first-quarter total for four years.

More than 82 tonnes of gold went into technology such as smartphones, games consoles and cars, up 4%. Gold is used in bonding wire in memory chips and complex sensors for smartphone features such as 3D video, virtual reality and iris and gesture recognition, as well as in gaming consoles. Such sensors are also becoming more important in cars as safety features such as collision avoidance systems.

Another boost is expected from 5G network upgrades under way in the telecommunications industry: Verizon plans to roll out 5G to five cities in the US this year, and China, Japan, Taiwan and south Korea have similar plans.