Rising gold demand strongest in Germany and India

Overall demand down 1 percent, but investment demand up 4 percent
Published : 05/20/15
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The following text is an excerpt from Mike Fuljenz's Metals Market Report released May 19:

Last Thursday, the day after gold’s strong upward move, the World Gold Council (WGC) published its widely-followed quarterly report on “Gold Demand Trends.” The headline number was discouraging – overall demand declined 1% in the quarter, resulting in gold’s small price drop last quarter – but overall “investment demand” grew by 4%. The biggest increases came from Germany (+20%) and India (+15%).

Due in part to a declining euro and fears about what will happen if Greece is kicked out of the euro-zone, investors in Germany bought 32.2 metric tons of gold last quarter, amounting to 20% more gold coins and bars in the first quarter of 2015 than they bought in the first quarter of 2014. Beyond Germany, total demand for gold bars and coins rose 16% in Europe during the first quarter. Germany is the biggest and strongest economy in the euro-zone, and they also have a historic fear of inflation. Even though Europe is struggling with deflation now, the head of the European Central Bank (ECB), Mario Draghi, said last week that the ECB will keep printing new money as part of its stimulus efforts for “as long as needed.”

India’s 15% growth in gold demand last quarter was mostly due to the ongoing reform in their import restrictions on gold. The WGC report examined this trend and predicted that India’s gold demand will continue to rise 15% to reach nearly 1000 tons for the full year, vs. just 842.7 tons in 2014. India’s new leader, Narendra Modi, is being positioned as a free-market “Ronald Reagan of India.” Let’s hope so.

There was also a wild card in U.S. demand last quarter. Specifically, U.S. gold jewelry demand increased by almost one metric ton (i.e., 32,150 Troy ounces), the third consecutive increase in first-quarter jewelry demand. U.S. gold jewelry demand has now increased (year-over-year) in eight of the past 10 quarters.

For the full year, the WGC sees total gold demand rising to between 4200 and 4300 tons, up from 3924 tons in 2014. The WGC also reported that central bank gold purchases reached 119.4 tons in the first quarter, the 17th consecutive quarter of net central bank purchases. The biggest single purchase last quarter came from Russia, which bought 31 tons in March after buying no gold in January and February.

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