World Gold Council released its Gold Demand Trends Q2 2017 report, which identified an increase in demand for jewellery and gold coins and bars in the said quarter. Although, the overall gold demand in the three months dipped 10 percent to 953.4t; while gold demand in H1 slowed 14 percent to 2,003.8t. on y-o-y basis, both affected by record ETF inflows in 2016: demand from this sector slowed dramatically after last year’s H1 surge.

Jewellery demand improved from its weak performance in 2016 rising 8 percent (from 446.8t in Q2 2016 to 480.8t in Q2 2017), but has fallen short of the long-term average. India stood out as the major contributor to the increase in the gold jewellery demand, as India recovered from extremely low 2016 demand. India’s demand rose 41 percent to 126.7t compared from just 89.8t in Q2 2016. The strong recovery was expected after import figures reportedly hit an all-time high of 104.6t in May, as the market stockpiled gold ahead of the June GST rate announcement. The first two months of the quarter witnessed high consumers and jewellers demand, which slowed once the government announced the 3 percent GST rate. A brief flurry at the end of June, before the rollout of GST in July, pushed local prices to a premium of around US$3-4/oz above the international price, although some traders reported paying a premium as high as US$10/oz in some instances.

Demand was also boosted by festivals like Akshaya Tritiya, weddings and improved rural sentiment. The low prices coinciding during Akshaya Tritiya helped spur demand. Rural sentiment improved further as the government has begun replacing the currency after demonetisation, expectations of a good monsoon rainfall and a higher number of auspicious wedding days in the Hindu calendar. WGC notes that the new GST is likely to cause some short-term disruption as manufacturers, retailers, importers and consumers adapt to the new regime.

Chinese jewellery demand weakened again, but the pace of slowdown has moderated this year. Jewellery demand of 137.7t indicates a 5 percent dip on y-o-y basis, and was the lowest Q2 in China for five years. But the overall downward trend of the last three years has slowed so far in 2017: H1 demand was 4 percent below H1 2016. A shift away from pure 24k gold to lower-carat, higher-designed and higher-margin gold jewellery remained the dominant trend.

Central bank net purchases of 176.7t were also slightly lower in the first half (-3 percent). Bar and coin investment in Q2 gained 13 percent from Q2 2016, while H1 demand rose 11 percent. A strong jump in Turkey was fuelled by economic recovery, double-digit inflation and relative currency stability. Technology demand also made modest gains. ETF inflows slowed dramatically from last year’s record pace. But holdings continued to grow: after adding 56t in Q2, H1 inflows reached 167.9t. European ETFs saw the strongest H1 inflows: holdings in these funds reached a record 977.7t. Central banks continued to buy, but at a more modest pace than in recent years. Technology demand registered its third consecutive quarter of growth: up 2 percent to 81.3t.