Gold Bullion Demand Trends: Q2 2017

Q2 gold demand in 2017, at 953.4t, was 10% lower than Q2 2016, resulting in the first half-year demand slowing 14% to 2,003.8t.

According to the latest World Gold Council report, record ETF inflows in 2016 affected year-over-year comparisons: demand from this sector slowed dramatically after last year’s H1 surge. Central bank net purchases of gold bullion, at 176.7t, were also slightly lower in the first half (-3%). In contrast, bar and coin investment improved. Jewellery demand also improved but remains weak long-term.


Central bank demand up 20%

Slower ETF inflows drove the first half weakness, slowing dramatically from last year’s record pace. Jewellery demand strengthened from 2016’s low base but fell short of longer-term levels. Investors added 56t to global ETF holdings in the second quarter. Q2 bar and coin demand were up 13% YOY.

Central bank demand up 20% YOY but the overall pace remained restrained. Gold used in technology rose 2% YOY driven by growth in demand for bonding wire, Printed Circuit Boards (PCBs) and LEDs.

Total gold supply declined 8% in Q2: mine production was steady while recycling levels continued to drop back after the 2016 surge.


Why the Slow Down?

We believe this decline says more about the gold market in general than specifically on the appetite for gold ETFs. ETFs are still the popular tool for investors to buy gold, and changes in their holdings represent, in our view, a general sentiment amongst investors. As we estimated back in July, gold price shows some recovery, however as equities are doing very well, and as the geopolitical tensions did not affect the price of gold too strongly, many investors do not consider gold to be very interesting at this time.


What’s Ahead for Gold Bullion?

We believe that there is a strong case for gold, especially in the medium and long term, and with this in mind, we strongly prefer physical holdings over ETFs or any other financial instruments.