LONDON—Demand for gold fell to its weakest level since 2009 in the second quarter of this year, as Chinese buyers shunned gold purchases, metals consultancy GFMS said Tuesday.
“Almost all major physical gold markets suffered in the second quarter,” the London-based research firm, a unit of Thomson Reuters, said in a second quarter review and outlook to its GFMS Gold Survey.
Physical gold demand fell 14% from a year ago, with demand for bars and coins falling 12%, and demand for jewelry declining 9%, it said.
The decline in consumption came despite a 7.5% fall in average U.S. dollar gold prices.
The surge in value in China’s equities market during the first half of the year led to “substantially lower gold purchases,” according to the survey.
But the subsequent plunge in Chinese equities markets didn’t help, it said. The Shanghai stock market has lost nearly one third of its value in recent weeks, but investors didn’t turn to gold, “as some investors were locked in and others were nervous about asset allocation,” the survey said.
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Chinese retail investors bought 35 tons of gold bars and coins in the second quarter, down 26% year-on-year and the weakest second quarter since 2009, according to the survey.
In India, meanwhile, jewelry consumption increased 2.5% year-on-year to 158 tons in the second quarter, it said. India reclaimed the top spot in regard to total gold consumption, according to the survey.
Net purchases by government entities slumped 62% to 45 tons, according to the survey.
GFMS said it expects that total supply of gold fell 3% in the second quarter to 1,054 tons. There was therefore a surplus of 196 tons in the second quarter, the highest since 2010, it said.
In terms of price, the research firm said, “it remains our view that a U.S. rate hike this year is already priced into the market and that an increase could well prompt a review of asset allocations that leads to an increase in gold holdings.”
GFMS expects an average price of $1,135 an ounce for the third quarter, which it believes will be the lowest point in the current cycle. After that, prices will rebound to $1,175 an ounce average in the fourth quarter. The firm raised its forecast average price for 2015 by $10 to $1,180 an ounce.
“Price strength is forecast to continue in our base case with 2016 averaging $1,250 an ounce,” it said.
