World Gold Council's Q1 report

While 2013 was an exceptional year for gold demand in Asia, with shortages of minted physical gold bullion products and gold itself, according to some, 2014 continues to show robust gold demand according to the World Gold Council's Q1 report.

At BullionStar, we can testify about the growth in gold demand that we have seen in the last year. Whereas investors in the Western economies have shunned gold because it carries no yield or return on investment, regional physical demand in South East Asia has been very strong and is spurred by other factors.

Asian Gold Mindset

The Asian mindset to gold is different from in West says Managing Director of the World Gold Council, Mr. Albert Cheng, at the presentation of the World Gold Council's publication "Q1 Gold Demand Trends" to which BullionStar was grateful to be invited. Many Asians view gold as a conservative way of saving. With the economic growth in China, the increased gold demand is a result of the wealth effect continues Mr. Cheng.   

Gold demand in the first quarter of 2014 was 1,074 tonnes, almost unchanged compared to Q1 2013. On the shortages which appeared during 2013, Mr. Cheng comments that it was the minting capacity that was limited rather than the supply of gold itself. The reason for the shortages last year was that it takes time for the delivery of 400 oz gold bars from the London vaults, through Swiss refineries minting 1 kg bars, before delivery can be taken in Asia, says Mr. Cheng. 

Demand and Price of Gold

The price of gold went down substantially during 2013 with premiums for physical gold soaring in the retail segment. While Asians are taking physical delivery of gold both in form of bullion and jewellery, 880 tonnes of ETF gold held mostly by Westerners, were sold off in 2013. World Gold Council's data implies that the Chinese gold buyers are not very interested in ETF’s, certificates or paper gold as they want hold the physical gold themselves in form of jewellery or bullion.

For Q1 2014, the World Gold Council notes that the ETF gold selling trend has eased which has had an impact on the gold price premiums. Mr. Cheng notes that the gold premiums have come down significantly from the high levels seen in China and India during 2013.

India

On India, Mr. Cheng notes that the new leader Mr. Modi has, during his election campaign, communicated that the gold duties and complicated import rules for gold may be rolled back. Asked about whether a potential increase in the demand of gold from India may break the back of the physical market, Mr. Cheng says that the market rebalance all the time and that there’s a grey market in India which may skew the real picture.

Central Banks

During Q1, the central banks have continued to be net buyers of gold adding 122.4 tonnes to their reserves. Mr. Cheng comments that the central banks understand the importance of holding gold as a reserve asset. Most notably, the Bank of Iraq has added 36 tonnes to its reserves during Q1. Other countries such as Russia and Kazakhstan continues to buy steadily and has added 6 tonnes and 5 tonnes respectively.