Gold demand 18% down

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Continued currency weakness in Turkey meant that the price of gold in lira rose more than in any other currency during Q1 (+12%), undermining the jewellery demand.

Gold jewellery demand in Iran has jumped up by 27% in 1Q2017, compared to the same period of 2016, according to the World Gold Council's report.

The council said central banks' demand for gold continued at a much slower pace.

In India, demand for jewelry increased by 16 percent to 92.3 tonnes, while the sector suffered at the end of 2016 from the government's demonetisation effort.

Jewellery demand in the first quarter was marginally up at 481 tonne from Q1 2016.

Inflows into ETFs totalled 109, which, although solid, were nonetheless a fraction of last year's near-record inflows.

"What we saw in the first quarter was consumers quite keen on buying before the 5 per cent import duty actually fed through into higher prices", said Alistair Hewitt, head of market intelligence at the World Gold Council, the London-based market development body.

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The first-quarter drop in central bank buying is reported to feed into an 18 per cent fall in global gold demand. Central banks showed a diminished appetite for gold purchases; China's purchasing programme was on pause during the quarter as its foreign exchange reserves remained under pressure. "Concerns over the weakness of the yuan and the outlook for the real estate market from the tail-end of last year spilled over into 2017; this combined with the usual seasonal strength around Chinese New Year and a rising gold price to support investor sentiment".

The total imports during January-March period rose by 112 per cent to 270.1 tonne from 127.4 tonne in Q1 2016.

The report further said that mine output of 764 tonne was slightly changed from the first quarter of 2016 (of 768 tonne), and it is in line with the prediction that the production will remain largely steady before declining.

ETF demand has fallen back sharply, while consumer demand for physical gold has made up some of the shortfall.

"Fintech companies are also tapping into gold-backed products that reach young investors, which effectively popularizes gold-an investment conventionally believed to be a favored investment tool for senior-age investors", said a research note from Sinolink Securities Co.

Demand in India increased by 15 per cent during the quarter to 123.5 tonne, signalling a return of optimism in the industry. "At 283.0 tonnes, recycling is below its long-run average (since Q1 2000) of 296.2 tonnes", says the WGC. "People are uncertain, it is generally good for gold", said Mulligan.