Gold demand in the first half was the lowest since 2009 - WGC

By Peter Hobson

LONDON (Reuters) - Global demand for gold fell 6 percent in the first half of this year due mainly to a sharp decline in purchases by exchange traded funds (ETFs), the World Gold Council said in a report on Thursday.

Total global demand for gold was 1,959.9 tonnes over January-June, down from 2,086.5 tonnes in the same period last year and the lowest first-half total since 2009, the industry-funded WGC said in its latest Gold Demand Trends report.

For the second quarter, demand was down 4 percent year on year at 964.3 tonnes. Purchases of gold for investment fell 9 percent, driven by a 46 percent decline in ETF buying.

Central bank purchases dipped 7 percent over April-June and a weak Indian market dragged use for jewellery, the biggest source of demand, down 2 percent.

"It's been a soft start to the year and that's largely because of lower investment demand," said Alistair Hewitt, the WGC's head of market intelligence.

ETF investment was weakest in the United States, where a strong economy gave little incentive to buy gold, traditionally used as a safe place to store assets during political and economic uncertainty.

But in Europe, demand was bolstered by the rise of eurosceptic parties in Italian elections and uncertainty over European Central Bank policy, Hewitt said. In China an escalating trade dispute with Washington and falling stock markets drove investment demand.

"Towards the end of the second quarter we actually saw outflows from U.S. listed funds," Hewitt said. "It really was the European inflows that meant we saw modest global inflows over the quarter."

In Iran, meanwhile, sales of gold bars and coin surged 202 percent as the United States pulled out of a deal on the country's nuclear programme.

Jewellery demand failed to gain from a 5.4 percent fall in the price of gold over April-June because the currencies of key consumers including China, India and Turkey weakened, making dollar-priced gold more expensive for local buyers, the WGC said.

Jewellery consumption in India fell 8 percent in the second quarter to 147.9 tonnes, in part because of the weaker rupee. Demand in China was more resilient, rising 5 percent to 144.9 tonnes.

On the other side of the market, increased mine production and recycling helped lift overall supply by 3 percent to 1,120.2 tonnes in the second quarter.

GOLD DEMAND (T)*

Q2 2018 Q2 2017 % change

Jewellery 510.3 519.4 -2%

Technology 83.3 81.5 2%

Investment 281.4 310.3 -9%

- Bar and coin) 247.6 247.8 0%

- ETFs and similar) 33.8 62.5 -46%

Central banks 89.4 96.4 -7%

TOTAL 964.3 1,007.5 -4%

* World Gold Council, Gold Demand Trends Q2 2018

(Reporting by Peter Hobson; Editing by Alexandra Hudson)