Gold demand plateaus as Chinese buy less jewelry

Beijing-China (May 14)  Global gold demand eased 1 percent in the first quarter, an industry report showed Thursday, as a drop in Chinese jewelry demand narrowly outweighed a recovery in Indian buying and Western appetite for bullion-backed funds.

In its Gold Demand Trends report for the period, the World Gold Council (WGC) said Chinese jewelry buying fell 10 percent in the first three months of the year.

That was sparked by uncertainty over the direction of prices, as well as strength in Chinese equities and fears of a slowdown in Chinese growth, it said.

"The rampant strength of the equity market is clearly diverting attention away from gold," WGC head of market intelligence Alistair Hewitt said.

Over the course of the year, Chinese gold demand is still expected to grow to between 900 and 1,000 tons, a similar level to that forecast in India, he said.

Despite the drop, China was the world's biggest consumer of gold jewelry, coins and bars in the first quarter, the WGC figures showed.

India, historically the world's No.1 gold buyer, saw a 22 percent rise in jewelry demand in the period, though demand for bars and coins fell 6 percent. In 2014 the market was curbed by official restrictions on imports, including a rule that 20 percent of imported gold had to be reexported.

"We've seen a nice percentage element of growth, but we're probably just getting back to where India's gold market has been over the last five years," Hewitt said. "More importantly, looking ahead, India's gold market is returning to a more normal environment, as opposed to the volatility that it experienced as the government implemented restrictive policies like the 80:20 rule."

Overall demand for jewelry, the biggest segment of gold demand, fell 3 percent in the first quarter, with consumption also declining in the Middle East, Turkey and Russia.

Partly offsetting the impact of that, gold-backed exchange-traded funds saw their first quarterly inflow since late 2012 in the first quarter.

Source: Reuters