Gold investment demand falls 34%, but WGC says it was still 'robust'

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Gold demand in India could be muted in the second half of 2017, as the rollout of the new Goods and Services tax (GST) from July is expected to dent appetite in the world's second-biggest consumer, the World Gold Council (WGC) said on Thursday.

Global gold demand in Q1 2017 was 1,034 tonne, a decline of 18 per cent compared to the record Q1 in 2016, according to the World Gold Council's latest Gold Demand Trends report.

UAE jewellery demand reached 15.2 tonnes in the first quarter, almost flat from the 15.3 tonnes in the first quarter of previous year. Slower central bank demand also contributed to the weakness.

"Wedding demand, that accounts for 40-50 per cent of jewellery, bars and coins demand, was strong in the first quarter".

The UAE showed the most usage in the first quarter at 17.2 tonnes, albeit down two per cent from a year earlier.

A focus on capital outflows may have been weighing on the Chine2se central bank's interest in gold, the WGC's head of market intelligence Alistair Hewitt said.

Total investment demand for Q1 2017 was up by 14 per cent at 31.2 tonne in comparison with Q1 2016 (27.5 tonne).

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Alistair Hewitt, head of market intelligence at the World Gold Council, points out that although demand has declined year-on-year, the first quarter of 2016 was always going to be hard to beat, as at the time demand was "exceptionally high". India's demand for gold in this very period rose from 79.8 tonne to 92.3 tonne, up 16%, or 12.5 tonne, which is almost double than the global increase. Retail investment demand is strong too, up 9% year-on-year with demand worth over US$11bn in Q1.

"Jewellery demand is still in the doldrums, although there are signs of improvement, especially from India where the gradual remonetisation of the economy is supporting the jewellery market", Hewitt said.

The outlook for India's gold demand is robust, but GST remains a cause of concern. Despite that, notional demand was average historically and price weakness likely will be limited, RBC said.

Overall, ETF inflows were "solid", physical gold investment was up and jewelry demand was steady; meanwhile, central banks did less buying than they have in the past.

A salesperson attends to a customer (not pictured) inside a jewellery showroom, during Akshaya Tritiya, a major gold-buying festival, in Mumbai, April 28, 2017.

The gold price was up more than 8% over the first quarter to US$1,245 per ounce after a weak end to 2016.

The total global supply of gold in the three months to March 30 was a 12 per cent-lower 1 032 tonnes, mainly on a 21 per cent recycling fall to 283 tonnes.