14 Aug 2014 Gold Jewellery Demand Drops 30%!
The World Gold Council just released second quarter demand and supply statistics. On the supply side not much happened with total supply increasing by 10% from the second quarter of 2013. What is interesting though is that producers are starting to hedge future production again. They hedged 50 tons in Q2 compared to -15 tons last year. That added 50 tons to mining supply. Mine production only increased by 4%.
On the demand side, jewellery demand dropped nearly 30% from Q2 last year while bar & coin demand dropped 56%. Investors also continued to sell Gold ETFs, although much less than the 400 tons they sold in the second quarter of last year. After Central Banks stabilized fears of a monetary collapse, investors sold ETFs in droves as there is no yield on the ETF.
Central Bank purchases was the only saving grace, up 28%. Central Banks changed from net sellers for decades to net buyers after the 2008 financial crises. Because of low global interest rates the opportunity cost of holding Gold is very low. Some Central Banks prefer to build Gold reserves instead of foreign exchange reserves. Future inflation in the US might decrease the value of the Dollar, making Gold reserves safer.
After a spectacular rise to $1,895 in the aftermath of the financial crises, the Gold price declined steadily and traded in a very narrow range of less than $100 since April. With stability in the financial markets there is very little reason for investors to buy or hold Gold. Jewellery demand seems to suffer from slow economic growth. This does not bode well for the Gold price at all.
– Gerhard Lampen
Head Sanlam iTrade