Continuing global geopolitical instability, expectation of lower interest rates and higher gold prices all combined to drive a record surge in purchases of the yellow metal by central banks (374.1 tonnes) in H1 2019, according to figures released by World Gold Council (WGC) in its quarterly publication Gold Demand Trends (GDT) Q2 2019.

The report said that jewellery demand over Q2 2019 at 531.7 t was 2% higher than the previous year, but this was largely on account of robust demand in India during the early part of the period, driven by a busy wedding season and healthy festival sales.

WGC said however, that the steep increases in prices in June brought Indian demand to a virtual standstill, while Chinese jewellery consumption followed a similar pattern: modest growth in April and May and then a collapse in demand as gold prices rocketed and consumer sentiment withered.

Despite the price-driven swing towards the end of the first half, global H1 jewellery demand was marginally firmer at 1,061.9t – a four-year high. Much of this growth came from India, where the jewellery market improved from the low base of 2018. Among the other few areas of modest improvement were the US and a handful of Middle Eastern countries, but the June price rally curtailed jewellery demand across many markets.

Indian jewellery demand had its best quarter of y-o-y growth since Q2 2017. Demand gained 18.7 t (12%), to 168.6 t compared with 149.9 t in Q2 2018, largely due to two factors: a higher number of auspicious wedding days compared with 2018, and local gold prices moving lower from the levels seen in February and March. The higher customs duty announced in the annual budget in early July has put further curbs on the outlook for Q3, WGC said, adding however, that this is not expected to have a long-term impact on gold demand in India.

In China, Q2 marked the third consecutive quarter of y-o-y decline in jewellery demand which dropped 4% y-o-y to 137.8 t. When combined with the relatively soft Q1 number, this resulted in a 3% decline in H1 demand to 321.4 t.

Meanwhile, the US recorded the tenth consecutive quarter of growth which lifted H1 jewellery demand to a decade high of 53.4 t. The world’s third largest jewellery market recovered from the effect of the Q4 2018/Q1 2019 government shutdown and consumer confidence rallied in the first two months of the quarter, before slipping back in June as concerns grew over the trade war with China.

Bar and coin investment was also affected by price movements: as the gold price powered its way to multi-year highs, profit-taking kicked in and retail investment all but dried up, WGC said. The figure for Q2 was 218.6 t, a decline of 12%, which when combined with the soft Q1 number, brought the H1 total to a ten-year low of 476.9 t. A 29% y-o-y drop in China accounted for much of the global Q2 decline.

Holdings of gold-backed ETFs grew 67.2 t in Q2 to a six-year high of 2,548 t, with the geopolitical instability and expectation of a drop in interest rates providing a push.