Global Gold Demand Falls 4% In Q2; Long-Term Trend Remains Positive
(Kitco News)- Gold demand in the first half of the yeardropped to its lowest level in 9 years while the global market declined 4% inthe second quarter, according to the latest report from the World Gold Council.
Thursday, in its latest quarterly GoldDemand Trends report, the WGC said that global gold demand dropped to 964.3tonnes, down from 1,008 tonnes consumed in the second quarter of 2017. For thefirst half of the year, global gold demand totaled 1,959 tonnes, a drop of 6%from the first half of last year.
“Slower inflows into gold-backedexchange-traded funds (ETFs) created a weak comparison against the highs oflast year, contributing to the lowest H1 demand since 2009,” the analysts atthe WGC said in the report.
The report comes as sentiment in the goldmarket is near historic levels. Many analysts have noted that interest in gold,as seen in Google search trends, fell to its lowest level in over a decadeduring the second quarter.
While the North American market has seenlackluster interest in the yellow metal, Juan Carlos, Director of InvestmentResearch at the World Gold Council, said in an interview with Kitco News thatinvestors should not entirely dismiss the yellow metal.
“Our research shows that there is stillplenty of investor demand in gold globally,” he said.
He noted that European investment demand wasthe most significant driver in gold-backed ETF markets during the second quarteras North American interest dried up.
At the same time, the world’s largestgold-consuming nation saw a pickup in demand. The WGC said that Chinesephysical gold demand increased 11% to 69.5 tonnes. Artigas said that it’s notsurprising that Chinese gold demand was on the rise as the government startedto devalue its currency to promote economic growth. The Chinese yuan fell 5%against the U.S. dollar in the second quarter, the WGC said.
“We see Chinese investors and consumersusing gold to preserve capital,” he said.
Myth-busting:Strong Economic Growth Is Good For Gold Market
Many economists have shunned gold as asafe-haven asset as momentum in the U.S. economy continues to surge ahead;however, Artigas said that economic growth is a positive factor for the goldmarket.
“Positive economic growth is not a negativefor gold,” he said. “This is the most important factor to support long-termgrowth in the gold market. Positive economic growth will boost physical demandthat will continue to support the market.”
Artigas noted that in a healthy economy,consumers buy more gold jewelry, investors have more capital to invest in themarket and technology demand grows as people buy more smartphone and otherhigh-end electronics.
Those themes show up in the WGC’s latestresearch. U.S. jewelry demand in the second quarter increased 5% with the firsthalf of the year seeing demand at its highest level since the first half of2008.
“Demand benefited from the positive domesticeconomic environment: rising wages, lower taxes boosting household incomes,unemployment at historic lows and heightened consumer confidence,” the WGCsaid.
At the same time, tech-sector gold demandincreased 2% to 83.3 tonnes in the second quarter, its seventh consecutivequarter of growth. Artigas said that the council thinks this is just the startof a long-term trend in the tech sector.
“Because of its properties, gold is anintegral component in many different technologies,” he said. “The moretechnology we develop, from autonomous cars to new phones and computers, thehigher demand we will see for gold.”
AtThis Point Any Catalyst Will Push Gold Higher
Although there are significant pillars inthe gold market to promote long-term growth, Artigas admitted that the onlypiece that is missing is the investor interest. He added that this is thesector that is needed to drive the yellow metal in the short-term, breathingmuch needed new life in the marketplace.
However, he noted that sentiment in theinvestment sector could quickly change, especially as the U.S. economy facesgrowing uncertainty.
In particular, Artigas said that theflattening yield curve, which is close to inverting, is signaling a growingrise for the U.S. economy. The U.S. economy has fallen into a recession thelast seven times the yield curve inverted when 2-year bond yields rose above10-year bond yields.
Currently, the spread between 2-year bondsand 10-year bonds is 32 basis points.
“I don’t think it will take much forinvestors to return to gold,” he said. “At this point, anything can be thecatalyst. In the past, many investors have used these conditions as anattractive entry into the market.”
GrowingGold Supply Eh
While demand was down in the second quarter,the WGC reported that mine supply increased to 835.5 tonnes, up 3% from thesecond quarter of 2017.
“This strength in mine output is mainlyattributable to the continued ramp-up of several projects, as well as furthercapital expenditure from gold miners,” the WGC said.
In mining actvity, Canada saw the most significant growth with outputincreasing 21% from the same time last year. The U.S. saw the most significantreduction in mining activity falling 8% in the second quarter compared to 2017.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.