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World Gold Council Report: Gold Demand Soft in First Quarter

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The World Gold Council described overall demand for gold as “soft” in its Global Demand Trends Q1 2018 report. Global demand was down 7% year-on-year.

The WGC said the drop was primarily due to weak investment demand. Investors added to their holdings of gold coins and bars, as well as gold-backed ETFs, but at a slower pace than Q1 2017.

There were some bright spots in the report. Gold demand in the technology sector marked its sixth consecutive quarterly gain. Jewelry demand held steady. And not all investors are spurning the yellow metal.

Total global demand came in at 973.5 tons. That was the lowest first-quarter level since 2008.

China, Germany and the US drove weakness in bar and coin sales. Global investment demand fell 15% to 254.9 tons as range-bound gold prices undermined investor interest.

Demand in China, the world’s largest gold market, was down 26% year-on-year. That was partly due to extremely high demand in the first quarter of last year as investors worried about the strength of the yuan. Those concerns have eased as the Chinese currency has increased 9% since March 2017. Even with the large drop, the WGC called Chinese demand “relatively healthy.”

This annual comparison does not paint a complete picture. Q4 2016 and Q1 2017, when worries about a weakening yuan were at their most intense, were exceptionally strong: demand was above 100t in both quarters. At 78 tons, Q1 2018 is relatively healthy: it is above both the three- and five-year averages (of 68.3 tons and 71.2 tons respectively). Industry contacts reported a spurt of activity when the Shanghai Stock Composite Index plummeted in February and a boost to gold demand from increasingly hostile US trade rhetoric.”

Demand was also off in India, falling 13%. A government crackdown on “unaccounted income” and increased surveillance of retail investors put a crimp in Indian gold sales.

The WGC described the US physical gold market as “mired in the doldrums.” Gold and coin sales came in at a paltry 3.7 tons.

A buoyant economy coupled with a lackluster gold price saw US Mint Eagle sales fall 59% y-o-y in Q1 2018. The February spike in the VIX index – a measure of the S&P 500’s volatility – did not have the same impact as it did on investors in US-listed ETFs.”

This is a continuation of a trend we’ve seen in the US since Pres. Trump took office. Last year, Peter Schiff speculated a lot of Americans who normally buy gold are Trump supporters, caught up in unwarranted optimism.

You have the opposite of a bubble in gold. Certainly, if you look at the United States, Americans are buying less gold now than they’ve done since the bull market began in 1999 – 2000.  Sales from the US Mint have collapsed … Americans are not buying gold … But the people who typically buy gold in America voted for Trump, and they’re no longer worried about the economy. So they’re not buying gold. They’re buying stocks instead, and I think they’re making a big mistake. They should be selling their stocks and buying even more gold.”

The mainstream continues to paint a rosy picture. Many Americans still cling to that optimism, although the data indicate it might not be warranted.

While investment in gold has dropped off in the US, Europe and China, it’s not down everywhere.

Gold coin and bar demand in Iran soared 250% to 9.3 tons in Q1 as “investor concerns over worsening Iranian-U.S. relations and the prospect of currency controls fueled a flight to gold.”

Demand also spiked in Turkey, climbing 160% quarter on quarter and 47% year-on-year. A 10% inflation rate has motivated investors to move into gold in order to protect their wealth.

Where investors are aware of problems, they are buying gold.

Other Highlights from the Report

Jewelry demand held steady at 487.7 tons. Growth in China and the US compensated for weaker Indian demand.

Central banks bought 116.6 tons of gold, up 42% year-on-year. Russia, Turkey and Kazakhstan led the way, together buying 91 tons.

Technology demand rose 4% to 82 tons. It was the sixth straight quarter of growth in the technology sector. Electronics demand grew 5% year-on-year due to healthy demand in the wireless and memory sectors.

Just over 32 tons of gold flowed into gold-backed ETFs. North American-listed ETFs added 38.4 tons, offset by outflows elsewhere.

Mine production grew fractionally to 770 tons in Q1.

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