Short-term boost likely for gold demand in Thailand

Andrew Naylor, regional CEO, Asia Pacific (ex-China) of the council, said during an online press conference on Wednesday morning that due to the economic slowdown and uncertainty factors, gold remains a preferable alternative for Thai people.

He said consumer demand for gold during the second quarter this year had already increased 14 per cent, from 7.5 tons in the same quarter last year to 8.5 tons this year.

The council pointed out that the demand was supported by a 10 per cent year-on-year increase in demand for jewellery from 1.7 tons in the second quarter of 2021 to 1.9 tons in the second quarter of this year and a 15 per cent year-on-year increase in bar and coin demand. Jewellery consumption has been supported by the economic recovery, emergence from Covid restrictions and a rebound in tourism.

“This is the sixth consecutive quarter that we’ve seen a year-on-year rise in jewellery consumption in Thailand, owing to lower gold prices as well as higher safe-haven demand for gold amid a weaker local currency and inflationary concerns," Naylor said

However, global jewellery fabrication outperformed consumption as demand remains well below pre-pandemic levels, he added.
 

The latest Gold Demand Trends report reveals that the overall global gold demand (excluding over-the-counter) in the second quarter was down 8 per cent year on year to 948 tons. However, thanks to strong exchange-traded funds (ETF) inflows in the first quarter, gold demand for the first half of 2022 is up 12 per cent compared to the first half of 2021 at 2,189 tons.

In terms of global demand, gold price fell in the second quarter of 2022 after an initial rally in April on geopolitical risks and rising inflationary pressure, as investors shifted their focus to rapidly rising interest rates and a strikingly strong US dollar, the council said.

The 6 per cent drop in gold prices over the quarter impacted gold ETFs, which saw 39-ton outflows in the second quarter. The first half of this year has seen net inflows totalling 234 trillion, compared to 127 trillion in outflows in the same period last year, the council said. 

However, given a potentially softening inflation outlook amid continued rate hikes, the second quarter decline is likely to set a weaker tone for ETFs in the second half of 2022, the council added.

In the second quarter, demand for gold bars and coins remained stable year on year at 245 tons. Demand increased significantly from India, the Middle East, and Turkey, helping to offset weakness in China, caused in part by ongoing coronavirus lockdowns. As a result, global bar and coin demand fell 12 per cent year on year to 526 tons in the first half of this year.

In the jewellery sector, gold demand in the second quarter increased 4 per cent year on year to 453 tons, aided by a 49 per cent increase in Indian demand compared to the second quarter of 2021, Naylor said.

The strong performance in India has compensated for a significant drop of 29 per cent in mainland China, where the market was hampered by coronavirus lockdowns that slowed economic activity and reduced consumer spending.

Meanwhile, central banks were net buyers in the second quarter, adding 180 tons to global official reserves, the council said. Net purchases reached 270 tons in the first half of the year, matching the findings of the council's recent central bank survey, in which 25 per cent of respondents stated that they planned to increase their gold reserves in the next 12 months.

In the technology sector, gold demand was down 2 per cent from the second quarter of 2021 at 78 tons, resulting in the demand being marginally lower year on year at 159 tons in the first six months of this year, the council said.

The electronics industry has continued to face supply chain disruption, as well as diminished consumer appetite for electronics as the cost-of-living crisis takes hold; both of these factors contributed to the slight drop in demand.

According to the council's Gold Demand Trends data series, mine production for the first half of the year reached a new high of 1,764 tons, up 3 per cent from the first half of 2021.

Some projects mined higher-grade deposits, and the Chinese mining industry returned to normal output levels after safety stoppages last year, boosting output.
Gold price increases in the first quarter and increased economic hardship and uncertainty led to an increase in recycling activity, with total recycling reaching 592 tons in the first half of the year, an increase of 8 per cent year on year, the council said.

Louise Street, senior analyst Europe, Middle East and Africa at the council, said there are both threats and opportunities for gold in the second half of 2022. Safe-haven demand will likely continue to support gold investment, but further monetary tightening and continued dollar strength may pose headwinds.

"As many countries face economic weakness and the cost-of-living crises continue to squeeze spending, consumer-driven demand will likely soften, although there should be pockets of strength," said Street.