Gold demand slips in the first quarter after last year's record highs while supply flatlines

Courtney Goldsmith
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Geopolitical risks and negative bond yields will continue to spur demand (Source: Getty)

Gold demand slipped 18 per cent year on year in the first quarter of 2017, falling from the highs of a record-breaking quarter in 2016, according to a new report.

Global gold demand was 1,034.5 tonnes in the first three months of 2017, according to the World Gold Council’s latest gold demand trends report.

Alistair Hewitt, head of market intelligence at the World Gold Council, said the decline doesn't reflect weakness in the first quarter this year, as last year was best first quarter on record.

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Inflows into exchange-traded funds (ETFs) totalled 109.1 tonnes and were mainly concentrated in Europe, led by Germany and the UK. Geopolitical risks like Brexit and key elections along with negative real and nominal bond yields spurred demand. Although it was a solid figure, it is just a fraction of last year's near-record inflows.

Demand for gold bars and coins was healthy at 289.8 tonnes, up nine per cent from the previous year, while demand firmed slightly in both jewellery and technology sectors.

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Central bank demand has continued to slow, however, down 27 per cent to 76 tonnes, contributing to the overall decline.

Supply expected to plateau before dropping

On the supply side, gold contracted sharply in the first quarter, down 12 per cent on the previous year to 1,032 tonnes. Mine production was little changed from last year, however, supporting view supply will remain steady before dropping.

"The production profile of currently operating mines shows a relatively steep drop­off over the next five to 10 years," the report said, due to sharp cuts in capital expenditure over recent years as well as a lack of significant discoveries.

This will not have an immediate impact on the price of gold, but it will support investment sentiment, Hewitt said.

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