Precious Metals: Gold US$1,272/oz vs US$1,272/oz yesterday.
Gold demand climbed 21%yoy led by gains in investment category that recorded the strongest uplift in seven years while higher prices incentivised producers to reconsider hedging policy in Q1/16,m the latest WGC report shows.
- Demand climbed on a 122%yoy increase in investment interest compensating for declines in jewellery (-19%yoy), technology (-3%yoy) and central bank purchases (-3%yoy).
- Purchases of ETFs totalled 363.7t (11.7moz) compared to an average of 34.1t in liquidations in the last five years.
- “Negative interest rates, stock market volatility and concerns over global economic growth all contributed to the upsurge in demand.”
- Jewellery demand was down in China (-17%yoy) and India (-41%yoy), two countries accounting for 56% of the world’s total, as price sensitive regions cut back on purchases as prices climbed 7%qoq.
- In addition, strikes across India with jewellers protesting against provisions in the budget regarding an increase in tax levies significantly limited the supply.
- India’s Q1 demand was the weakest in seven years with the decline (-62t) accounting for over the half of the 115t fall in global jewellery demand.
- The pent up demand accumulated through weeks of the strike is expected to benefit the outlook for the remainder of the year, WGC notes.
- In China, despite strong start to the quarter due to purchases during the Chinese New Year, the second half of the quarter was weaker as producers started adjusting their inventories to new national standard for hallmarking coming into effect on May 4.
- The increase in stock replacement activity led to a temporary supply squeeze that together with concerns over the slowing pace of economic growth weighed on demand.
- On the supply side, an marginal increase in mine supply (1%yoy) together with a 40t increase in net producer hedging compensated for a 1%yoy decline in recycling.
- Despite an increase in hedging, the WGC does not expect a widespread shift to long term hedging any time soon.
- Most of the hedging recorded through the quarter remained relatively short-term involving months rather than years and was driven by the need to secure cash for project-related financing or debt repayments.
- Among companies involved in hedging in Q1/16 the WGC points out Polyus Gold (19.4t), Evolution Mining (4.7t), Newcrest, Acacia Mining and New Gold.
- Mine supply climbed a modest 5t while the WGC noted the trend remains for output to plateau over coming years.
- Gold ETFs 58.2moz v 58.1moz yesterday