Physical gold demand dipped to seven-year low in Q2 2016

SEATTLE (Scrap Monster): Thomson Reuters has published the Gold Survey Report for the second quarter of the current year. The report titled ‘GFMS Gold Survey: Q2 2016 Review and Outlook’ provides detailed analysis and insight into the supply and demand data for the global gold during the quarter ended June 2016.

According to the report, Asian gold demand remained exceptionally weak during the quarter. As a result, Q2 2016 turned out to be the second consecutive quarter of heavy decline for physical gold demand. The gold demand during the quarter has dropped by more than 20% year-on-year. Q2 2016 recorded the lowest quarterly demand during the past seven years. The overall demand during the initial half of the year too remained weak.

On the other hand, gold ETF demand remained extremely strong, especially in North American region and London. The ETF demand touched new record high of 568 tonnes during the first six months of the year. The outcome of UK referendum on Brexit created panic around world financial markets and sparked safe-haven demand for gold. This resulted in huge inflows of money into worldwide gold ETFs. The huge drop in physical demand was balanced by excessive ETF demand. Consequently, the overall gold market ended in a small surplus during H1 2016. Flow of scrap gold increased significantly, whereas mine output contracted.

In the report, GFMS Thomson Reuters has revised the 2016 average gold price forecast to $1,279/oz, in tandem with the huge run up in gold prices recently. Moreover, several economic and political uncertainties including Brexit and fading hopes on US Fed rate hike will lift the safe-haven appeal for the yellow metal and lead to stronger prices, it noted.

The demand declined sharply in key gold consuming countries including China and India. The gold demand from Chinese jewellery sector tumbled by over 30% year-on-year during the second quarter of the year. The demand recorded the lowest quarterly level since 2009. Also, gold bars and coin investment demand dropped sharply by 12% during the quarter. The jewellery consumption in India recorded sharp decline by 56% to total 69 tonnes in Q2 2016. The sales were hugely impacted by nationwide strike by jewellers against imposition of 1% excise duty on gold purchases. The rural demand failed to gain momentum, on account of poor monsoon. The gold buying activity during Akshaya Tritiya-traditionally considered as the most auspicious occasion to buy gold, remained more or less muted due to high gold prices. The gold prices had registered a dream run, surging higher by 10% during Q2 alone and by 25% since the start of the year.

According to GFMS Gold Survey Report for Q2 ’16, the global gold mine supply had increased marginally during Q1 this year to 744 tonnes. As per estimates, the Q2 mine supply is likely to total around 770 tonnes, nearly 2% lower when compared with the mine output during Q2 last year. The gold mine output from China, Mongolia and Mexico are likely to record sharp drop. With few new commissioning of new mines and expansions, world gold mine supply is expected to witness a multi-year downtrend. However, the scrap gold supply witnessed dramatic rise, rising by 9% year-on-year. This ensured that the overall market ended in a small surplus during the initial half of the year.