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Global Demand for Physical Gold Up in First Quarter

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Global demand for physical gold increased by 9% year-on-year in the first quarter of 2017, according to the latest demand report from the World Gold Council.

The sale of gold bars and gold coins hit 289.8 tons worldwide in Q1, driven by Asia’s appetite for gold. The WGC said the strength of the retail investment market in the first quarter built on 2016’s exceptionally strong finish.

Demand in China soared in the first quarter. Chinese investors gobbled up 105.9 tons of gold. That represents a 30% year-on-year increase, and was the fourth strongest quarter on record.

Demand also rebounded in India after a weak end to 2016. Indians bought 31.2 tons of gold bars and coins in the first quarter of this year. This after the Indian economy virtually ground to a halt after after a government demonetization policy that suddenly declared 1,000 and 500 rupee notes no longer valid. According to the WGC, currency in circulation fell 50% from Nov. 11 to Jan. 6. Sales of motorcycles – a good barometer of the health of India’s cash-reliant economy – halved in December. Gold imports in the first quarter indicate a rebound, increasing 106% over Q1 2016.  It appears strong first quarter demand carried over into the new quarter. Indians bought 23 tons of gold in a single day during the Akshay Tritiya festival last week.

Demand for gold bars and coins was also strong in Europe during the first quarter. Europeans bought 60.8 tons of gold, up 9% year-on-year. The German market led the way in Europe. Demand increased 13% y-o-y rising to 34.3 tons. It was the strongest first quarter for physical gold sales in Germany since 2011.

Switzerland and Austria saw decent growth, as did the UK, which hit its highest level since Q2 2013. As with European-based institutional investors, the specter of political uncertainty prompted retail investors to buy gold as a hedge against the flurry of elections in the Netherlands, France and Germany.”

The only major market to see a decrease in demand for physical gold in Q1 was the US. Bar and coin sales slipped 20% year-on-year to 16.2 tons. WGC analysts say American investors shifted their focus away from gold to buy into the Trump-rally and chase equity markets higher. Americans may be playing a risky game. As we reported recently, there exists a big disconnect between stock market perception and economic reality. Many Americans are also starting to realize that Trump may not be as adept at getting things done politically as they’d hoped.

Inflows of gold into ETFs also increased, although it was dwarfed by the first quarter of last year. Global holdings of gold-backed ETFs grew by 109.1 tons in Q1; total AUM in these products stood at 2,251.8 tons by quarter-end, worth just over $90 billion.

The main headline generated out of the WGC Q1 report was that gold demand was down overall. But this was really more a function of an exceptional first quarter in 2016. The real story is that investors around the world are buying physical gold.

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