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India, China account for 80% drop in gold jewellery demand in Dec quarter

India and China, the world's two biggest gold consumers, accounted for an 80 per cent drop in global demand in the fourth quarter of calendar 2019 on the back of rising yellow metal prices and soft economic conditions, according to the World Gold Council's latest report.

China’s Q4 jewellery demand was 10 per cent lower on a y-o-y basis at 159.7 tonnes, while the full-year 2019 demand slipped 7 per cent to 637.3 tonnes. Slowing economy, rising inflation, global trade disputes, higher gold prices and the younger generation’s shifting tastes towards lighter jewellery pieces contributed to subdued demand in 2019, WGC said. India, on the other hand, recorded a 17 per cent y-o-y drop in gold jewellery demand in Q4 at 149 tonnes.

WGC estimates the total fourth quarter demand for gold at 1,045.2 tonnes – a drop of 19 per cent year-on-year (y-o-y). The two main segments contributing to this were jewellery demand that fell 10 per cent y-o-y to 584.5 tonnes to reach its lowest level since 2011 and physical bar demand, both of which reacted to the elevated gold price. On an annual basis (2019), gold demand dropped 1 per cent y-o-y to 4355.7 tonnes with demand for bar and coins, jewellery and technology denting the sentiment most. 

Gold prices, according to the WGC report, averaged $1481/oz (Rs 33,912/10 gram) in Q4, up 20.76 per cent in dollar terms and 19.1 per cent in rupee terms on a y-o-y basis.

“This was the highest average price since Q1-2013. Although the price remained below the Q3 high, it was well supported. And gold priced in various currencies – including euros, Indian rupees and Turkish lira – hit their highest levels in history,” WGC said.

Global reserves grew by 650.3 tonnes (-1 per cent y-o-y), the second highest annual total for 50 years. Gold buying in Q4 of 109.6 tonnes was 34 per cent lower y-o-y, although this was partly a reflection of the sheer scale of buying in 2018.

“Global demand in the second half (H2) was down 10 per cent compared to the same period of 2018 as y-o-y losses in Q4 compounded those from Q3, notably in jewellery demand and retail bar and coin investment. The annual supply of gold increased 2 per cent to 4,776.1 tonnes. This growth came purely from recycling and hedging, as mine production slipped 1 per cent to 3,436.7 tonnes,” the WGC report says.

While bar and coin investors were more inclined to capitalise on the price rise by selling existing holdings or waiting for the price to find a steadier footing, positioning in US futures turned sharply bullish in June as the Federal Reserve began to ease rates. This bullish sentiment among professional investors, WGC says, contributed to the price rise, which in turn attracted further momentum-driven investment inflows, notably into ETFs.

More headroom for prices

Despite the sharp rise in prices, analysts still see more headroom for the yellow metal in the years ahead. Geopolitical developments, soft economic climate globally and the central bank policies, they believe, will keep gold prices relatively firm going ahead.

“The main reason to have a structural investment in gold is not to hedge the risk of rising geopolitical tensions but rather to bet on the view that G7 central banks will not be able to normalise monetary policy,” wrote Christopher Wood, global head of equity strategy at Jefferies in his recent note to investors. In his Asia ex-Japan long-only portfolio, Wood has allocated 50 per cent to gold bullion, 20 per cent is held in unhedged gold-mining stocks and the balance 30 per cent in Asia ex-Japan equities.

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