Gold demand spikes in June quarter

Gold demand rose 15 per cent in the three months to June, spurred by investment demand from the West.

Gold demand rose 15 per cent in the second quarter, compared with the same period last year, spurred by investment demand from the West, the World Gold Council said on Thursday.

An environment of low interest rates, along with significant economic and political uncertainty, encouraged western investors to buy gold as a haven and portfolio diversifier, according to the industry body’s Gold Demand Trends report.

“The global picture for gold is dominated by considerable and continued investment demand driven by the West,” Alistair Hewitt, head of market intelligence at the World Gold Council, said in a note.

Global investment demand was up 141 per cent from the same quarter the year before, the report said. Combined with figures from the first quarter of 2016, this led investment demand to its strongest first-half-of-the-year performance on record, the report added.

Gold-backed exchange-traded funds proved especially popular in the second quarter, while US bar and coin demand was up 101 per cent compared with the same period last year.

Total demand for gold rose 15 per cent to 1,050 metric tons, compared with 910 tons in the same quarter in 2015. That was despite a 10 per cent year-over-year increase in total supply, primarily due to recycled gold. Gold-holding consumers typically put the metal back on the market to capitalise on rising gold prices.

Gold is attractive in periods of uncertainty because it maintains a stable price and, as a noninterest bearing asset, fares well compared with interest-bearing assets when rates stay low. The metal’s rise has been aided by political events such as Britain’s vote to leave the European Union and the US presidential race, along with concern about the Italian banking sector, among other factors.

The US gold price has surged 25 per cent this year, the strongest first-half-of-the-year price gain since 1980, the report said.

But the rise in prices has hit demand price sensitive markets, which typically buy when gold falls. The “customary powerhouses” of China and India saw large drops in jewelry demand in the second quarter, falling by 15 per cent and 20 per cent, respectively, the report said.

Mr Hewitt said he expects demand will pick up in India in the second half of the year due to the upcoming wedding season and a strong monsoon, which helps farmers, boosting their income.

“Whilst investment is currently the largest component of demand, we see a gradual return for the jewelry market in the second half of 2016,” he added.

The report found that technology and central bank demand was also down year-over-year in the second quarter, by 3 per cent and 40 per cent, respectively.

- Dow Jones newswires