Forgive us for coming back to a subject we have covered before, but we have previously commented on our disbelief that India regained top spot as the world’s No. 1 gold consumer in 2014. This belief, which is since being perpetuated by the mainstream global media, was based on the World Gold Council (WGC)’s Gold Demand Trends report of February this year, which had India just pipping China into the No.1 spot on preliminary data. We disagreed with this assessment at the time and have pointed to other statistical analyses of the global gold market since which would also reverse this position and we are now pleased to note that the latest WGC Gold Demand Trends report has China firmly back in the No. 1 spot for 2014 with its latest consumption figure for that year put at 973.6 tonnes as against India’s 811 tonnes. China’s figure would be even higher at 1,015 tonnes if we include Hong Kong consumption which perhaps one should given that Hong Kong is a part of China even if its statistics tend to be recorded separately.

The latest WGC statistics – now provided by the Metals Focus consultancy rather than by GFMS which has provided them in the past – also suggests that Chinese consumption (excluding Hong Kong) fell by 7% in Q1 this year to 272.9 tonnes compared with Q1 2014, while India’s grew by 15% to 191.7 tonnes – which still leaves China as comfortably the No.1 global consumer.  The report also points out that the two countries between them account for 54% of total global gold consumer demand. In terms of percentage of new mined supply – put at 729 tonnes for Q1 2015 – the two countries accounted for 64%. But we also believe that, in the case of China, these figures still substantially underestimate gold flows into the country, which is in part due to a rigid calculation as to what actually is defined as ‘consumer demand’. This does not appear to include demand absorbed directly by the Chinese banking system. To back up our view withdrawals from the Shanghai Gold Exchange (SGE) in Q1 this year reached around 623 tonnes – 10.5% higher than in Q1 2014 – See: SGE Q1 gold withdrawals at new record – ca. 623 tonnes. Whether one takes SGE withdrawal figures as an accurate representation of actual Chinese demand (there are arguments over this) it is certainly an accurate indicator of the levels of Chinese gold flows.

Now whether the world’s mainstream media will now recognise the latest WGC figures as being the correct ones, or continue to claim India is the world’s No. 1 gold consumer based on the earlier WGC data, is a moot point – we suspect not.  But anyway which is actually the larger gold consumer at any point in time is perhaps an irrelevance in terms of overall global gold supply/demand fundamentals.

So, if we look deeper into the WGC’s latest Gold Demand Trends report, it would appear that global gold demand slipped marginally by about 1% in Q1 this year compared with a year ago with lower jewellery demand mostly countered by a rise in investment demand.

Central banks too continued to absorb gold with purchases of 119 tonnes – the same level as a year earlier, being the 17th successive quarter in which they have been net purchasers as they have continued to look for diversification away from US dollar denominated assets.

Global supply was also much the same as a year earlier, with a continuing rise in new mined production (compared with Q1 2014, but actually down on Q2,3 and 4 figures for last year) balanced by a continuing fall in supply from scrap, which has been limited by lower gold prices. On new mined supply, the report suggests that the analysts expect this to plateau this year before starting to retreat until, and unless, there is a substantial gold price pick up.

On mine production the WGC notes that, “A further increase is likely next quarter as the tail end of growth comes through from a number of projects. However, this should fade away as the year progresses; we will likely see negative comparisons in the second half of the year.

Alastair Hewitt, the WGC’s head of market intelligence, in commenting on the report, noted that what has turned out to be a fairly stable supply/demand balance hides some substantial regional and sectoral differences – for example Chinese jewellery demand is seen as falling back by around 10%, but this being perhaps more than balanced by a 22% rise in Indian jewellery demand. Gold ETFs also saw a small inflow during the quarter (26 tonnes) being the first quarterly inflow since 2012. Consumers in Eastern nations continued to dominate demand, but this has been the case for some time now with gold flows continuing to move at a high rate from West to East.

Thus overall the latest WGC report sees little change in supply and demand fundamentals, while the gold price has actually remained fairly stable during Q1 trading within a fairly tight range throughout the quarter. This morning the price has been sitting close to the $1,220 level which is towards the higher end of its recent range, but it tends to fluctuate quite sharply on US data announcements depending on whether these are seen as bringing the US Fed timetable for possibly raising interest rates forward or moving it ever further back. In our view this should in reality be something of an irrelevance for the gold price anyway as any likely level of interest rate increases would still leave them in effective negative territory.