India and China Continue to Push Gold Demand Higher- World Gold Council

Global demand for gold in jewellery, bars and coins has increased in the first quarter on rising consumption in China and India, according to the World Gold Council (WGC).

Nevertheless, total gold demand declined 13% in the quarter due to a massive liquidation in exchange traded fund (ETF) holdings, showed WGC's Gold Demand Trends Survey.

The WGC said that total jewellery demand rose 12% to 551.0 tonnes in the first quarter, while total bar and coin demand rose 10% to 377.7 tonnes.

India and China contributed a combined 62% of the first-quarter global jewellery demand. Bar and coin sales were up 52% on-year in India and 43% in the US.

Total first-quarter gold demand in China has increased by 24% on year to 294 tonnes, primarily due to New Year purchasing, renewed confidence in economic prospects and the removal of uncertainty about the transfer of leadership in the country.

In India, total demand rose 27% to 257 tonnes due to better incomes among rural population, a dip in local price of gold and preparations for the second-quarter wedding season. With a view to narrow its current account deficit, India has raised its import tax on gold to 6% from 2% over the past 2 years.

Meanwhile, total investment in gold declined by 49% to 200.8 tonnes due to sizable outflows from ETFs. Gold futures prices declined about 5% during the first quarter, prompting investors to pull money from ETFs. Gold held by gold-backed ETFs fell by 177 tonnes during the quarter.

Central banks added more than 100 tonnes of gold to their reserves in the first quarter, the seventh consecutive quarter of significant buying from the official sector. However, the level of purchasing was 5% lower than year-earlier levels. In technology sector, gold demand declined 4% on-year to 102 tons in the first quarter.

Global gold supply was little changed at 1,051.6 tonnes in the first quarter.

"What these figures show is that even before the events in April, the fundamentals of the gold market remain robust with growing demand in India and China, central banks consistently adding gold to their reserves and strong buying of investment products such as gold bars and coins," said Marcus Grubb, managing director of investment at the World Gold Council.