Gold price, demand moved in opposite directions during March quarter

The price rose 16% from $1,060 an ounce at end-December to $1,272 an oz

The March quarter saw a huge rise in the global price of gold, hand in hand with a big drop in demand from the biggest consuming nations, China and India.

The price rose 16 per cent from $1,060 an ounce at end-December to $1,272 an oz. GFMS Thomson Reuters says investment demand went up eight-fold to 330 tonnes, led by demand from US investors. While physical demand tumbled 24 per cent to 781 tonnes, the lowest quarterly total since the first quarter of 2009. The jewellers strike in India for all of March was one reason.

China’s jewellery demand of 130.6 tonnes, though down, was double India’s 64.9 tonnes. India’s jewellery consumption fell 56 per cent to the lowest level since the first quarter of 2008, while imports were down 46 per cent to 117.2 tonnes.

According to industry officials, after withdrawal of the jewellers strike in the second week of April, the scene is improving in India, with a fall in discounts, some imports by jewellers and by refineries in excise-free zones. Other domestic refineries are still to adjust to the restructured excise duty announced in the Union Budget. In the quarter, mine supply dropped to a two-year low. With the higher price, scrap sale flows rose by four per cent from a year before. It is usual that when prices rise, old jewellery comes to the market.

Two striking facts about gold demand in the quarter are a 29 per cent fall in jewellery consumption and fabrication demand, and a 26.2 per cent fall in net official sector demand, which means central bank purchases. Retail demand was another dampener. However, despite the surge in price, it was still 2.9 per cent lower than the average in the same quarter a year before.

With physical demand support not there, GFMS expects the price to drift below $1,200 an oz, which should lead to a revival in demand. It expects the year to end around $1,300 an oz.