Gold Demand Tumbles as Price Steadies

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Gold Bars And Coins As World Gold Council Meet To Discuss Valuation Processes
Chris Ratcliffe/Bloomberg via Getty Images
By Katie Holliday | @hollidaykatie

Global gold demand declined sharply in the second quarter as prices steadied following exceptional circumstances in the same period of last year, according to the latest World Gold Council report.

Bullion demand stood at 964 tons in the second quarter, down 16 percent on year, when demand totaled 1,148.3 tons, the report published Thursday found.

However, the decline came as no surprise given the contrast in market conditions between the periods.

"The rapid 25 percent drop in the gold price during the April-June period of 2013 sparked a leap in gold demand that we have heard described as a 'once in a generation' event," the report said.

The 2Q13 price decline was driven by outflows from exchange traded funds as investors saw the onset of tapering by the Federal Reserve dampening inflation expectations.

By contrast, gold prices held within a relatively narrow sideways range in 2Q14, keeping volatility well below average.

Much of the slump was attributed to large declines in jewelry, bar and coin investment. Jewelry demand -- which historically accounted for over half of global gold demand -- fell by almost a third in 2Q14, while bar and coin investment fell to less than half the levels seen in 2Q13.

Much of jewelry's decline occurred in Asia and the Middle East, although most western markets -- with the exception of Italy -- saw year-on-year gains, particularly the U.S. and the U.K.

The WGC blamed China and India for the slump in bar and coin investment. Indian investors have had their hands tied by a ban on coin imports, uncertainty around the election of a new prime minister and restrictions imposed on the movement of cash and hard assets. Chinese investment demand was suppressed by a lack of price direction and the hangover from last year's buying frenzy. Base effects exacerbated the decline in China given record-high demand in in 2Q13.

However, despite the seemingly hefty declines, the WGC said that demand for both these segments was now more in line with longer-term norms.

Jewelery demand is just 2 percent below its five-year quarterly average. Gold bar and coin investment demand is down 20 percent on its five-year quarterly average, but remains comfortably within the higher range established after the global financial crisis.

In terms of exchange traded funds, or ETFs, the investment vehicles saw modest outflows of 39.9 tons, a vast improvement on the 402.2 tons of outflows in the year earlier period.

Central bank buying remained strong at 117.8 tons in the second quarter, logging its 14th consecutive quarter of net buying from this consistent category of demand.

Purchases in 2Q14 rose 28 percent on year, as ongoing geopolitical uncertainty spurred the desire to hold gold reserves as a form of protection, the WGC said.

Russia, Kazakhstan and Tajikistan were the three largest central bank buyers of gold over the quarter.

Supply Side

On the supply side, mine production increased in the first half of the year. An additional 58.2 tons of gold were produced compared with the first half of 2013. However, the WGC expects this rate of growth to slow in the coming quarters as the supply side thins and producers are less able to cut costs.

"Indeed mine supply may have peaked and will likely plateau over the course of the next 4-6 quarters as a result," the report said.

On Thursday gold traded at around $1,313 an ounce.


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15 Comments

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socioeconomist1

I remember when idiots were on CNBC promising that Gold would hit $2200/oz... One guy said $3500. Paulson timed it perfectly to create a massive bubble when the recession hit. I bet Gold falls to $800/oz by 2020.

August 15 2014 at 4:59 AM Report abuse -1 rate up rate down Reply
ludfordelec

Gold is needed for you to even write this comment. Commodities are a very dangerous market to play games with in the short term. Gold in the long run has always gone up, it's a refection of inflation or the economy in general. Your real estate, International money exchange, metals, pork bellies, wheat, beef, and on and on, are all part of this.
Some of the better metals would have been copper, aluminium, and steel, some up 300%. All of these are being recycled now. How about PVC, an oil product?
Yes, I agree, our government is manipulating all these markets or the Chicoms would bury us.
They are also using your taxes to do it. ummmmm

August 15 2014 at 2:35 AM Report abuse +1 rate up rate down Reply
1 reply to ludfordelec's comment
socioeconomist1

You are not that bright..... Gold hit $1100/oz in 1977, and it took 42 years for it to hit that same price after dropping down to $300/oz in the 1980's.

So many uninformed idiots on this website talking like they have a clue..... Get back to working for your paycheck, punchie.. Anyone who has ever looked at a gold chart knows you're a nimrod.

August 15 2014 at 5:01 AM Report abuse -1 rate up rate down Reply
ddi92234

Gold hasn't really dropped below 1250 for a LONG time. Its range bound now between 1285 and 1350. If it breakes in either direction there will be some buying.

August 14 2014 at 12:09 PM Report abuse rate up rate down Reply
cpruitt221

Gold will eventually drop just because it has no real use other than decoration.

August 14 2014 at 11:59 AM Report abuse rate up rate down Reply
3 replies to cpruitt221's comment
pfjw

Gold is a metal of limited utility other than decoration. Both copper and silver are better conductors. Aluminum almost as good. About the only industrial value to gold is as a non-corroding plating for contacts and materials exposed to harsh conditions (space, extreme climates, acids and so forth). Then, of course, as decoration.

Were we to train ourselves to not value that decoration, the price of gold would drop like a stone. NOTE to the Gold Bugs out there: In the case of Armageddon, a can of tuna or a quart of clean water will have more value than a ton of gold coins - which cannot be eaten, drunk, burnt, use as clothing nor any other useful purpose other than being possibly cast into bullets or used as fishing weights. Gold as a currency at _any_ level requires an intact infrastructure. Otherwise, it is useless.

August 14 2014 at 11:20 AM Report abuse -1 rate up rate down Reply
2 replies to pfjw's comment
edwels610

Maybe, maybe not. Gold and silver has always been
extremely valuable. I think even in an apocalypse
scenario, Gold and Silver will be useful for trade.

August 14 2014 at 1:40 PM Report abuse +1 rate up rate down Reply
1 reply to edwels610's comment
pfjw

Why? In the case of Armageddon, only things with actual utility will have value. Guns, only if they have ammunition. Food, water, cloth, clothing, shoes, knives, tools, medicines and so forth. Something that is merely heavy and potentially pretty will not. A canoe will have value. Its weight in gold will have none.

For gold to have any value at all in that scenario, every potential trader will have to agree to it. One (1) disagreement, no value. Silver is useful as an antiseptic (yes, it is), Copper is useful for many things as it can be beaten into tools and implements that gold cannot achieve. And so on and so forth.

Gold is neither more nor less valuable than printed money - it has value _only_ because there are those that agree that it does. Gold has value only because there are those that agree that it does. Paper is much more easily transported, and a few electrons even more so. But it is all by mutual agreement and, for that reason, quite fragile.

August 14 2014 at 4:42 PM Report abuse rate up rate down
ludfordelec

Sure wish you knew what you were talking about, Not-
Your wrong, gold is used in all high end semiconductors and you would not be writing this garbage on your computer if they used copper, or anyother conducting element other than gold on their circuit boards. Gold is a very good conductor. You will be trading your jewels in because it is needed to run this planet now. Gold does not have a negative or posiitive ion.

August 15 2014 at 1:56 AM Report abuse +1 rate up rate down Reply
chuckles

What a farce. the central banks of the world are so scared of gold becoming more valuable than worthless pieces of fiat paper, they will do/say anything to control it's price.

August 14 2014 at 11:13 AM Report abuse rate up rate down Reply
Leroy Gd

Gold demand is down. But notice the price is still high.

August 14 2014 at 9:12 AM Report abuse +1 rate up rate down Reply
alfredschrader

In the 1980s gold was $425 an ounce. Today it's about 3 times that. But iron was $10.00 a ton and today it's $180.00 a ton or 1,800 % higher. The smart money is in iron, not gold.
The best place to keep iron ? In the desert. And yes behind razor wire patroled by guards.

August 14 2014 at 9:05 AM Report abuse +3 rate up rate down Reply