Gold Demand Report: Central Banks Remain Buyers

Gold DemandOn Thursday, May 14, the World Gold Council published its quarterly Gold Demand Trends report. The world’s total demand for the yellow metal was 1,079 tons during the first quarter of 2015. This is one percent lower year-over-year. (Source: World Gold Council, May 14, 2015.)

Jewelry Demand in Asia

Indian jewelry demand in the first quarter of 2015 increased 22% year-over-year. China demanded 10% less gold jewelry compared to same period last year. China’s lower demand could come from the slowdown of its economic growth or the rallying of its stock markets.

Despite the demand fluctuations in India and China, these two are still the biggest contributors to consumer demand. Together they make up 54% of global consumer demand this quarter.

Europe: Gold Bars and Coins

In Europe, demand for gold bars and coins surged in an era of uncertainty. Quarterly demand for bars and coins surged 16% year-on-year. The main reason could be the huge uncertainty surrounding Greece and its place in the eurozone.

Germany seems to be particularly concerned with the situation (and they should be). The country purchased 32.2 tons of gold bars and coins this quarter, a 20% increase from the same time last year.

Central Banks Hoarding Gold

Even the central banks, which were previously dumping gold, have switched gears and started hoarding the shiny metal.

Since the Great Recession started in 2008, the world has realized that the U.S. is not the safe haven it once was. It is subject to economic downturns just like everyone else. As a result, the U.S. dollar has lost some of its glory as a reserve currency.

What did the central banks turn to? Gold.

In the first quarter of 2015, central banks bought 119.4 tons of gold, which is similar to the amount from last year. Note that it is the 17th consecutive quarter where central banks are net buyers of gold.

Russia is a good example. In October 2011, Russia’s central bank had 841.1 tons of gold, making up nine percent of its reserves. In February 2015, the Russian central bank had 1,208.2 tons of gold; that’s a three-year increase of 43.6%. (Source: World Gold Council, last accessed May 14, 2015.)

On the supply side, things are shrinking. According to a U.S. geological survey, U.S. mines produced 17,400 kilograms of gold in January 2015. This is a nine percent decrease from December 2014. (Source: U.S. Geological Survey, last accessed May 14, 2015.)

When you put everything together, the implication is very clear. For centuries, gold has served investors well through its ability to preserve wealth. During times of uncertainty, consumers and investors will rush to gold. If the price is not high enough to bring in more supply, it will be soon.