Could Physical Gold Demand Rescue Gold Prices?



Physical demand fell in 1Q17

Physical gold demand fell 18% in 1Q17, according to the WGC (World Gold Council). Investors most likely dumped the metal to bet on riskier assets after the US presidential election. The demand in 1Q17 was 1,034 tons, the lowest in 11 years. ETF inflows suffered greatly compared with last year, and weak central bank demand also contributed to the significant decline. The steep YoY (year-over-year) decline in 1Q17 was also due to 1Q16 being exceptionally strong in terms of physical gold demand.

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India’s demand outlook

Jewelry demand was slightly up, at 481 tons, mainly due to demand gains in India. India’s gold demand rose 15% to 123.5 tons in 1Q17. The WGC is upbeat on the India’s gold demand outlook. It believes that remonetization of the economy should help grow the demand for gold. However, it is slightly wary of the Indian government’s decision on goods and services tax.

China’s gold demand outlook

In 2016, Shanghai Gold Exchange (or SGE) withdrawals stood at 1,970 tons, the fourth-highest withdrawal on record. In the first four months of 2017, gold withdrawals have reached 727 tons, which is very strong growth from last year. China’s demand for gold bars and coins increased by 30% YoY in 1Q17.

The WGC believes that both of these markets will continue to drive gold demand despite short-term headwinds. These developments could support gold prices (GLD) (NUGT) as well as gold miners such as Sibanye Gold (SBGL), B2Gold (BTG), Primero Mining (PPP), and Alacer Gold (ASR).


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