Gold demand from Asia plummets in first quarter - GFMS

By Jan Harvey

LONDON (Reuters) - Gold prices that hit a 13-month high last month are likely to fall back in the short term because of a slump in demand from key Asian consumers, GFMS analysts at Thomson Reuters said in a report on Tuesday.

Global gold demand tumbled by 24 percent year on year to 781 tonnes in the first three months of the year, its weakest quarter in seven years, as buying from leading consumers India and China plummeted, GFMS said in the first-quarter update to its Gold Survey 2016.

That coincided with a sharp rally in prices, which posted their biggest quarterly increase in nearly 30 years. Prices peaked last month at their highest since February 2015.

"The rally so far in 2016 developed too rapidly in our view, and with poor demand from Asia we expect the gold price to ease sooner rather than later, particularly if fears about the global economy continue to abate," GFMS said in the report.

Demand for the metal will improve later in the year, however, as lower prices attract Asian buyers back to the market, it said.

"This correction to comfortably below $1,200 will aid a recovery in demand from the east, and this will ensure that prices stay well above cyclical lows," it said. "Thereafter, gold prices are set to resume their bull run (to) around $1,300 an ounce towards year-end."

Indian jewellery consumption fell 56 percent to an eight-year low in the first quarter, GFMS said, negatively affected by surging prices and a jewellers' strike that persisted through March.

Chinese jewellery demand slid 28 percent year on year, its weakest start to a year since the GFMS data series began in 2000. Chinese gold demand is expected to decline in 2016 overall as jewellery fabricators remains pessimistic towards consumption volumes, GFMS said.

GLOBAL GOLD SUPPLY AND DEMAND (T)

Q1 Q4 Q1 Pct change

2015 2015 2016 y-o-y

DEMAND

Jewellery consumption 525 581 373 -29.0

Jewellery fabrication 558 560 385 -31.1

Industrial fabrication 94 87 84 -10.4

Net official sector demand 124 136 92 -26.2

Retail investment 249 315 221 -11.0

Physical demand 1025 1097 781 -23.8

SUPPLY

Mine production 736 805 733 -0.4

Scrap 313 293 342 9.3

Net hedging supply -2 18 16 -908.8

Total 1047 1116 1091 4.2

Source: GFMS Gold Survey 2016, Q1 Update and Outlook

(Editing by David Goodman)