Global gold demand totaled 1,290 mt in the first quarter, up 21% from 1,070 mt a year earlier, as the biggest quarterly inflow into exchange-traded funds since 2009 offset a steep decline in jewelry demand, the World Gold Council said in a report Thursday.
The figure is up 16% from 1,111 mt in the fourth quarter of 2015, the WGC said.
Inflows into gold-backed ETFs soared to 364 mt in Q1, from outflows of 68 mt in Q4 2015.
Jewelry demand sank 27% to 482 mt from 663 mt in the fourth quarter, and was 19% lower than 597 mt a year earlier.
"Gold found favor as a risk diversifier due to the negative interest rate environment in Europe and Japan, combined with uncertainty over the Chinese economy, anticipation of slower interest rate rises in the US and global stock market turmoil," said Alistair Hewitt, WGC head of market intelligence.
He added that strong institutional demand has been driving the gold price this year, which gained 17% in the first quarter in dollar terms.
"Jewelry demand endured a difficult quarter due to a continued lack of consumer confidence in the face of a weakening Chinese economy and a 42-day strike by jewelers in India," Hewitt said.
China showed a 17.1% decrease on the year in jewelery demand, consuming only 179.4 mt Q1 2016. India showed a more drastic drop of 41.4% on the year to 88.4 mt, down from 150.8 mt a year earlier.
Recent tax changes in India, including a new 1% excise duty on top of the 10% in import taxes already levied, led to industrial strikes for 42 days at the start of March, which brought the Indian market to standstill.
In addition, rapidly rising gold prices have meant many Indians are unwilling to buy gold at current prices, and a poor harvest this year has reduced gold demand as a store of wealth, a common practice in rural India.
Chinese jewelery demand has been hit by economic uncertainty, leading to subdued consumer demand, and the introduction of a new hallmark for gold causing supply disruptions.
Hewitt highlighted four key reasons for gold's bull run this year. "Negative interest rate policies, notably Japan and Europe, show central banks are using unconventional policies, driving uncertainty, and increasing gold's attractiveness to the investment sector."
Meanwhile, total supply posted a 5% increase on the year to 1,135 mt in Q1, and mine supply was 8% higher at 774 mt.
Hewitt expects demand from reserve asset managers to continue to play an important role and stay strong in 2016.
Reserve asset managers, who are limited to investing in low-risk, highly liquid assets such as government bonds, have turned to gold this year in an environment of low-to-negative interest rates and weak global economic growth as an attractive alternative, according to Hewitt.
