Soft Chinese buying helps knock physical gold demand 9 pct in Q1 -GFMS

London (Apr 28)   Weak demand for jewellery, coins and bars in the key Chinese market helped drive a 9 percent fall in global physical gold buying in the first quarter, an industry report showed on Tuesday.

GFMS analysts at Thomson Reuters said in a quarterly report that Chinese jewellery consumption fell 12 percent in the first three months of the year, while investment in coins and bars dropped just over 10 percent to 56 tonnes.

China, which in recent years has vied with India to be the world's largest gold consumer, typically sees strong demand in the first quarter during its Lunar New Year festivities.

"The buoyancy of the Chinese stock market in the first quarter of 2015 helped subdue domestic gold purchases," GFMS said as it released the report.

Indian jewellery consumption rose 2 percent in the first quarter, but weakness in China, Turkey, North America and the Middle East led to a near 7 percent drop in global jewellery buying.

Investment demand in India slumped 31 percent to its weakest since 2009, though GFMS said it expects this to change in the full year. "Although heavy rains in Q1 have been negative for gold demand we continue to expect a solid year for Indian gold purchases," it said.

Overall world investment in gold coins and bars fell 17 percent to its weakest first-quarter level since 2009.

Physical demand in the United States was at its lowest first-quarter level since 2007, down 6 percent. Gold purchases by central banks also declined to 90 tonnes in the first quarter from 124 tonnes a year before.

Overall physical gold demand fell 9 percent to 990 tonnes.

GFMS reiterated its gold price forecast for 2015 of $1,170 an ounce, and its price view for 2016 of $1,250 an ounce.

Gold was trading just above $1,200 an ounce on Tuesday.

"The next move in the gold price is likely to be the result of a complex interplay between competing asset classes," GFMS' head of research Rhona O'Connell said. "In the short term, the price remains under some pressure, but any approach towards $1,100 will be constrained by a growing demand side response."

"Further out, clarification of the timing of the first rate hike in the United States will remove a degree of uncertainty from the markets and is likely to trigger the start of a secular, but gentle, bull run in the gold price."

Source: Reuters