Zimpapers Logo

THE World Gold Council is optimistic that there will be an increase in demand for gold in the second half of this year, when it expects a seasonal demand increase in India and gold’s lower price to feed through into stronger consumer demand.

Against the background of second quarter gold demand falling 12 percent to 915t, its lowest level in six years, the World Gold Council expects a considerably better second half, the initial weeks of which have already seen significant developments.

“The second quarter has been challenging, but we’re optimistic for the second half,” World Gold Council market intelligence head Alistair Hewitt commented last Friday.

Notable is the decision by the People’s Bank of China to lift its gold holdings by 57 percent to 1,658t.

“This is an overwhelmingly positive signal,” said Hewitt.

The World Gold Council expects gold demand in China — which became the world’s largest gold market in 2013, accounting for about a third of global gold demand — to grow by at least a further 20 percent by the end of 2017.

Higher second half demand is also expected in India, where the reserve bank last week announced its expectation of a harvest-enhancing average monsoon and where the World Gold Council is maintaining its 900t to 1,000t demand forecast for the subcontinent, where Diwali has still to play its gold-positive role.

In the US, retail investors struck an early second half high note for gold by snapping up 170,000 oz of American Eagle gold coins from the US Mint, the highest in more than two years.

In Europe, fears of a potential Greek exit from the eurozone saw second quarter retail investment in gold rise 19 percent to 47t, on seven percent-higher gold demand in Germany and six percent higher gold demand in both the UK and Spain. At official level, the central bank trend of being net gold buyers for 18 quarters is expected to continue going forward.

“I continue to see central banks as a core pillar of gold demand for the rest of the year,” said Hewitt.

The World Gold Council has forecast 2015 gold demand from central banks at 400t to 500t, with buying close to the upper range expected.

Net official second quarter purchases totalled 137t, with Russia and Kazakhstan the biggest buyers. Russia accounted for 67t in second quarter, up on its 60t in first quarter.

On the supply side, recycling of gold is expected to remain down and mine production expected to taper off as gold mining companies optimise their operations and rationalise their costs.

Total second quarter supply was down five percent to 1,033t, with the three percent rise in mine production to 787t offset by the eight percent-lower recycling contribution at 251t.

The major cutback in the past three years on expenditure for gold exploration and gold mine development is expected to create a significant supply lag in the years to come. — Miningweekly