The World Gold Council published a market update recently, which examines the effect of the recent fall in the gold price. The report also provides new consumer perspectives in India and China on gold price expectations and future purchasing intentions.
Gold-backed ETFs, which have accounted for 6.5% of global gold demand over the last three years, have seen outflows of 350 tonnes(t) out of a total of 2,700t held, from the beginning of the year through to the end of April. Concurrently, demand for gold in the form of bars, coins and jewellery (as an important form of investment), which makes up 72% of global demand and had begun to increase in Q1 2013, has seen a surge following the mid-April price fall. This has left many shops empty of stock and refineries introducing waiting lists for buyers.
The divergence in behaviour following the gold price drop reflects the dichotomous nature of investment in gold, with consumers who buy bars, coins and jewellery behaving very differently from buyers of exchange traded products.
Highlights from the Market Update
1. Premiums pushed to exceptional levels
Premiums paid for gold in Asian markets, over and above the spot price, rose almost immediately following the price fall:
- The Shanghai Gold Exchange saw premiums reach US$40/oz.
- Gold auctions run by the State Bank of Vietnam were fully subscribed with premiums at US$150/oz.
- In Mumbai premiums were as high as US$26/oz, before settling to around US$10/oz in the month following the price drop.
2. Gold demand in India up sharply
- India, which represents 28% of global consumer demand, may see an increase of up to 150% year-on-year in Q2 2013. This suggests that up to 400t of gold may be imported into India during Q2 2013, almost half of the total imports in the whole of 2012.
3. Consumers in India and China see opportunity in price moves
- World Gold Council’s latest research carried out in May 2013 reveals that 82% of consumers in India and China believe that over the next five years the price of gold will increase, or be stable.
- In May 2013, 45% of Chinese and Indian consumers questioned said they had bought gold in the previous six months.
4. Increased demand for bars and coins extends beyond Asia
- In the US, American Eagles saw the highest ever dollar value for coins (US$311m in April).
- The UK mint reported a tripling of coin sales in April.
- The Perth mint in Australia reported the highest demand levels in five years.
Based on the report, Asian markets are expected to see record quarterly totals of gold demand in Q2 2013. Even if ETF outflows continue in the US, it is quite likely that the gold previously held in ETFs will find a ready market among Indian, Chinese and Middle Eastern consumers who are taking a long-term view on the prospects for gold.
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