LAWRIE WILLIAMS: WGC sees Q2 gold demand down, but H1 positive
The World Gold Council (WGC) has released its latest Gold Demand Trends report, prepared using data mostly from London precious metals consultancy Metals Focus, covering Q2 and H1 2022. This confirms a fall-off in Q2, largely as a result of 39 tonnes of outflows from gold ETFs, but an overall 12% increase for H1 from strong Q1 figures year-on-year. However it should be remembered that Q1 2021 was weak due to the effects on demand of the tail end of Covid lockdowns.
There were also benefits accruing from a stronger gold price, which averaged US$1,871 an ounce in Q1, largely brought on by the Russian invasion of Ukraine. This led to a big boost in gold ETF inflows over the period, totalling 234 tonnes, far exceeding the Q2 outflows. However, outflows have continued since the end of Q2, but may well have levelled off now the gold price appears to have stabilised.
U.S. dollar strength will have contributed to a fall in the gold price, which in turn will have contributed to the Q2 ETF outflows, but again the dollar seems to have fallen back a little over the past couple of days as the U.S. economy appears to be moving into a technical recession.
The WGC notes that bar and coin investment at 245 tonnes was pretty much unchanged from Q2’21 as a sharp drop in Chinese offtake due to Covid lockdowns was offset by a return to growth in India, the Middle East and Turkey. However the overall H1 total saw a 12% year-on-year decline to around 526 tonnes principally on the Chinese weakness.
Q2 jewellery consumer demand was put at 453 tonnes, 4% higher year on year, although the comparison is with a fairly weak Q2’ 21. Total H1 jewellery demand of 928 tonnes was, however 2% down on H1’21.
Another positive demand factor was that central banks continued to buy gold, although at a reduced rate from some previous years with China announcing no new purchases and Russia officially ceasing gold purchases from April last year. Whether Russia is resuming gold purchases now is a little uncertain, particularly in the light of the ongoing war in Ukraine. The WGC puts global official gold reserves as having grown by 180 tonnes in Q2, taking H1 net purchases to 270 tonnes.
The gold price has been a little volatile over the half year. It lost 6% in Q2 but the WGC still accounts it as 1% higher than in Q1. It puts much of the Q2 weakness down to dollar strength and thus points out that this means that the gold price performance in many other currencies will have been very different.
Gold recycling was put at up 8% year-on-year, largely as a result of the higher prices being achieved, together with an increased strain on individual finances as a result of global inflation. Meanwhile China’s draconian zero-Covid policies tended to have a significant impact on retail demand there.
On the supply side, new mine production was estimated as rising 3% in Q2 to 1,764 tonnes – a new record. So much for peak gold! Production is seen as having risen due to an absence of COVID-related lockdowns and was boosted by continued recovery in China following safety stoppages in 2021.