While Demand Is Down, Chinese Gold Sales Surge 10%, Central Banks Become Long-Term Buyers

May 21, 2012

Despite a decline in gold demand of 5 percent in the first quarter, the World Gold Council says central-bank buying here to stay, changes statistical report to reflect it.


If all you did was read the big headline of the World Gold Council's Gold Demand Trends report for the first quarter of 2012 ["Gold Demand Down 5%"], you would miss the bigger story of how China is the top gold consumer for the third quarter in a row and that central banks continue to buy gold in such a way that the council is changing how it does its "Gold Demand Trends" report.

First Up — The Big Picture


The first thing to remember is that the first quarter of 2011 was an extremely strong quarter for gold demand. Keep this in mind as we start comparing the first quarter in 2012 with the gold market a year ago. Let's take a look.

Total gold demand for the first quarter was down 5 percent compared with the first quarter of 2011, and down for the second quarter in a row. This decline in tonnage demand came while the average price of gold was up 22 percent compared with the same time last year. The value of the gold at the end of the first quarter was $59.7 billion — a 16 percent increase over a year ago.

China once again, leads the global market in gold demand, up 10 percent from a year ago, to 255.2 tonnes. Other countries had larger percentage jumps in demand, but the size of those markets is so small, they're insignificant. For example, France had a 47 percent jump in gold demand year-on-year — for a total of 1 tonne.

The World Gold Council expects growth in China to continue to grow, as rising incomes mean more consumers have money available to buy gold jewelry. Chinese investors continue to worry about high inflation rates and use gold as an inflation hedge.

Additionally, property market restrictions mean investors continue to look for alternative real assets to invest in. The rate of gold demand growth will be more moderate as economic growth slows.


For the third-consecutive quarter, China has beaten India in terms of demand for gold jewelry, keeping it as the largest jewelry market globally, an astonishing feat in a world where India has been the key driver essentially forever.

In fact, during the first quarter, China was only one of six countries that saw increased jewelry demand year-on-year — the other five being Russia, Egypt, Taiwan, Indonesia and Japan.

With 156.6 tonnes of jewelry gold demand, China accounted for a full 30 percent of global jewelry demand, an increase of 8 percent year-on-year.

Gold demand in India dropped 19 percent year-on-year, but Indian consumer still hoarded 152.0 tonnes of the yellow metal. The World Gold Council actually classified this as a "somewhat more muted response than had been expected in light of the adverse events that beset the market during the quarter."

So what happened that would cause the WGC to call a 19 percent drop a "muted response"?


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