Demand for gold soared at the start of the year, the strongest first quarter on record, the World Gold Council (WGC) has said. It predicted that negative interest rates, global uncertainty and a good monsoon season in India would boost buying further in coming months.
Gold demand surged 21% in the first quarter, as negative interest rates in Japan and Europe, which have led to rock-bottom savings rates, slow global growth and stock market turbulence drove investors to bullion, seen as the ultimate safe haven.
The WGC’s report [PDF] noted that China’s devaluation of the yuan had fuelled fears over the country’s economic health and the impact on the global economy, and that the pace of US interest rate rises was now widely expected to slow.
Inflows into exchange-traded funds, which track the spot price of gold, reached a seven-year high, close to levels last seen during the Great Recession when the sovereign debt crisis was in full swing. The dollar price of gold rose 17% during the first quarter – its best performance in almost three decades.
Financial institutions were the main driver, but retail investors were also out in force, looking to gold to diversify their investments and protect their wealth. Buying by central banks dipped, however, and demand for jewellery fell due to the price rises and strikes in India.
Demand by US investors jumped 55% in the first quarter from a year earlier and Europe remained one of the biggest markets for gold investments, powered by Germany. In China, demand grew by 5%, boosted by buying of bars and coins for Chinese New Year.
Demand in India, the world’s second-largest gold consumer, slumped 39% at the start of the year in response to the price rally – but is expected to rise as much as 10% over the year as a whole.
India’s jewellery market virtually ground to a halt in March when jewellers reacted to government tax rises with widespread strikes. But a good monsoon season – with extra rain forecast between June and September – should boost farmers’ earnings, which have been hurt by severe drought in recent months. Two-thirds of India’s gold demand comes from villages, where jewellery is traditionally bought as an investment.
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