Tuesday, November 17, 2015

Why is inflation falling everywhere?

Back in 2008, many around me were quoting what happened in Germany in the early part of the 1900s with hyper inflation would happen in america. I blogged that this would not be the case. Many of our companies that provided software to manufacturers were seeing plants closing due to demand weakening. I wrote at the time we had overbuilt capacity in most industries so I thought we would have more risk from deflation. So, now we are seeing others begining to write about it. Aivars Lode
By Tomas Hirst
For decades, one of the predominant concerns for governments around the world was how to keep price rises in check. This campaign led to the establishment of independent central banks mandated to hit strict inflation targets in order to maintain price stability and ensure confidence in currencies.
That fear, however, is increasingly giving way to worries about the spectre of disinflation, as global inflation continues to decline.
In a speech in March this year, Bank of England Governor Mark Carney announced that inflation had fallen globally, with the rate of price rises “below target in 16 of 18 inflation-targeting major economies … Eleven of those countries have inflation rates below 1%.”
Why is inflation collapsing?
In part, the decline in global inflation since the 1970s reflects the success of central banks in moderating price rises.
By allowing independent central banks to set interest rates independently of governments, policy-makers hoped to keep inflation around a stable level consistent with full employment. In large part, they have been successful in achieving that aim, although they have not been able to fully mitigate the impact of the economic cycle on inflation and employment.
Moreover, this period has also seen profound labour-market reforms. Widespread unionization of the private sector has largely dissipated, and with it collective wage bargaining that many blamed for helping to fuel wage/price spirals. They have been replaced with minimum-wage legislation and an increasingly casualized labour force that is much more flexible to changes in the wider economy.
These developments have meant that the days of wage/price spirals appear to be past, but some economists also blame this increase in labour-flexibility for an unwanted cocktail of stagnant wage growth and underinvestment.
These not only weigh on inflation but also pose a risk to future economic growth. In other words, where labour costs become so flexible that companies can decide to hire low-cost workers rather than invest in new technology or machinery, productivity can be held back, and so can the potential for GDP growth.
Influence of emerging markets
Another key factor in this dynamic has been the rise of emerging markets, particularly China. Since the advent of the General Agreement on Tariffs and Trade (GATT) and then China’s accession to the World Trade Organization (WTO), the global labour market has seen a huge influx of new supply, helping to keep down wage growth but also substantially reduce the cost of goods (and in some cases services, too).
That downwards price pressure has helped to offset the impact of credit-fuelled demand in Western economies in the 1990s and early 2000s, allowing central banks to meet their inflation targets despite high domestic demand and tight labour markets that would usually lead to an overshoot.
That problem has now been reversed, however. As a post by M&G’s Bond Vigilante explains:
The deflationary forces leaking out of China stem from the Chinese authorities’ response to the 2008 crisis, where they embarked on huge infrastructure and investment spending. As previously argued on this blog, the investment bubble has become frighteningly inefficient. The consequence of China’s overinvestment was to create excess supply and overcapacity, which has proven disinflationary, but now China has to also contend with stagnating domestic demand.
If the disinflation exported by China in the 1990s and early 2000s was benign, as some have argued, this latest variety prompted by overcapacity and sluggish re-balancing towards domestic demand is unlikely to be described in such glowing terms.
One area its effects have been most keenly felt is in commodities markets, with the sharp drop in emerging market demand exacerbating the competition over market share between OPEC and U.S. shale oil.
A world of low inflation is not what the global economy needs right now. For one thing, although debt-to-GDP levels have fallen in some of the countries hardest-hit by the financial crisis, overall global debt has risen much faster than growth since 2008. While the pace of credit growth has slowed in developed markets, it has more than been made up for by debt build-ups in emerging economies.
Low inflation and sluggish global growth will make eroding that debt pile all the more challenging, and is also likely to force central banks to keep interest rates closer to the zero lower bound than they are comfortable with (limiting their ability to deal with possible future shocks).
Whether another debt shock can be avoided will depend on coordinated efforts to maintain modest post-crisis recoveries in the developed world and avert a debt hard landing in emerging economies.

Monday, November 2, 2015

Study: Are we shifting to fewer, weaker Atlantic hurricanes?

After Hurricane Wilma  the scientists predicted the next decade would be the worst on record for Florida hurricanes and it was not! So, how can we be certain of man's effect on the climate? Remember, I always advocates that we should be good stewards of the planet. Aivars Lode

By Seth Borenstein, AP Science Writer 

WASHINGTON — A new but controversial study asks if an end is coming to the busy Atlantic hurricane seasons of recent decades.
The Atlantic looks like it is entering in to a new quieter cycle of storm activity, like in the 1970s and 1980s, two prominent hurricane researchers wrote Monday in the journal Nature Geoscience.
Scientists at Colorado State University, including the professor who pioneered hurricane seasonal prognostication, say they are seeing a localized cooling and salinity level drop in the North Atlantic near Greenland. Those conditions, they theorize, change local weather and ocean patterns and form an on-again, off-again cycle in hurricane activity that they trace back to the late 1800s.
Warmer saltier produces periods of more and stronger storms followed by cooler less salty water triggering a similar period of fewer and weaker hurricanes, the scientists say. The periods last about 25 years, sometimes more, sometimes less. The busy cycle that just ended was one of the shorter ones, perhaps because it was so strong that it ran out of energy, said study lead author Phil Klotzbach.
Klotzbach said since about 2012 there's been more localized cooling in the key area and less salt, suggesting a new, quieter period. But Klotzbach said it is too soon to be certain that one has begun.
"We're just asking the question," he said.
But he said he thinks the answer is yes. He says the busy cycle started around 1995 and probably ended in 2012; in 2005 alone, Katrina, Rita and Wilma killed more than 1,500 people and caused billions of dollars of damage. The quiet cycle before that went from about 1970 to 1994 and before that it was busy from 1926 until 1969, he said.
Klotzbach doesn't take into account where a storm hits, but how strong storms are and how long they last regardless of whether they make landfall. So even though no major hurricane hit the United States in 2010, its overall activity was more than 60 percent higher than normal. And just because it's a quiet season doesn't mean a city can't be devastated, Klotzbach said. Hurricane Andrew hit South Florida in an otherwise quiet 1992 season as a top-of-the-scale storm.
Other scientists either reject the study outright or call it premature.
"I think they're pretty much wrong about this," said MIT meteorology professor Kerry Emanuel, who also specializes in hurricane research. "That paper is not backed by a lot of evidence."
Emanuel doesn't believe in the cycle cited by the researchers or the connection to ocean temperature and salinity. He thinks the quiet period of hurricanes of the 1970s and 1980s is connected to sulfur pollution and the busy period that followed is a result of the cleaning of the air. And Jim Kossin of the National Oceanic and Atmospheric Administration said cooler water temperatures earlier this year might be due to Atlantic dust, and August temperatures there have risen.
Another NOAA scientist, Gabriel Vecchi, said while there seems to be signs of a change in the circulation of the Atlantic, it's far too early to say that the shift has happened.
"So what happens in the next few years is going to be very exciting to watch as it may help settle or at least refine some intense scientific debates," Vecchi said in an email.

Sunday, November 1, 2015

$2b fee sticking point as Apple wrangles with Australia's big four banks

Many times I have identified that there are certain trends that are advanced in Australia in comparison to the USA. The Coffee industry is one; when Starbucks tried to establish a presence in Australia it did not recognize that and consequently did not make it in Australia. In this article about Apple negotiating the payment share with Aussie banks, Apple is using the US business model when the banking system is well and truly more advanced than the USA. Aivars Lode
By James Eyers
Australia's largest banks are fending off the world's largest technology company, Apple, as it tries to muscle in on the hotly contested payments market. 
Fairfax Media understands fees are a big sticking point in the negotiations, with big banks not willing to give Apple a slice of the $2 billion a year they earn in interchange fees, which are paid by merchants for use of payments infrastructure. 
In the United States, Apple is believed to earn about 15¢ on every $100 of transactions. It is understood Apple has been asking for the same amount of interchange fee in Australia.
But Australia's big banks will not agree to this level given that interchange fees in Australia are about half the US level – equivalent to an average of 50¢  $100 of transaction compared with about $1 for $100 of transaction fees in the US.
Commonwealth Bank of Australia chief executive Ian Narev would not comment on the progress of negotiations with Apple, but said Apple's attempts to offer Apple Pay in Australia won't be as easy as it was in the US given Australian banks' record of innovation. 
"By most global standards, the capability that the Australian banking sector has generally, and Commonwealth Bank has specifically, to provide for customers is ahead of a lot of the other markets around the world where Apple has done well," Mr Narev said last week after delivering the bank's full-year cash profit of $9.14 billion. 
"There is functionality associated with Apple Pay that we have had in the market for 18 months to two years." 


Apple Pay launched in October 2014 in the US and in Britain last month. It allows users of an iPhone 6 or Apple Watch to use a tap-and-go terminal to pay for items by holding their fingerprint on the phone or double-tapping the face of the smartwatch. But to be switched on in a market, Apple needs to strike a deal with banks to use the payments system.
Mr Narev said CBA had already offered the same functionality as Apple Pay through its app – for users of Android phones – for two years, so it was difficult for Apple to argue it is providing much value. In the US, Apple Pay was innovative because tap-and-go was not a feature of that market. 
Westpac also allows customers with Android phones to use them to pay via tap-and-go through the bank app. Take-up, however, has so far been low, with most customers preferring to pay with their cards. 
National Australia Bank was rumoured to be closest to securing a commercial arrangement with Apple over its payments product but Fairfax Media has been told it is more likely a small bank will be the first to strike a deal with Apple and use it as a tactic to target iPhone users for transaction-account market share. 
In Britain, the banks were successful in negotiating Apple down to a much lower fee. Apple is receiving only a few pence a £100 transaction, the Financial Times reported last month. 


The Reserve Bank of Australia is trying to push interchange fees down even further, to an average of 30¢ per $100 of transactions. This increases the stakes in the negotiations between the banks and Apple in how to share the interchange-fee pie. 
The big banks are also reluctant to open their payments infrastructure to Apple for two other reasons. First, because they are being forced by the RBA to tip hundreds of millions of dollars into building the New Payments Platform, new infrastructure that will have real-time capability, there are concerns about Apple seeking to free ride on this investment. 
Second, the negotiations are also challenged because banks are concerned about the prospect of Apple getting in between them and their customer at the point of sale, as banks recognise that future revenue growth will come from being the "interface" when customers pay for goods and services, which will allow them to cross-sell products. 
Apple is also negotiating from a position of weakness given that the take-up of Apple Pay in the US appears to be sagging. It is also facing competition from Samsung, which announced last week it would launch Samsung Pay in the US on September 28.


Despite the reluctance to cut a deal with Apple, Mr Narev said CBA was closely watching the movement of big tech players into financial services, as the global banking landscape is reshaped by ubiquitous mobile phones. 
"If it not Apple, it might be Google; if it is not Google, it might be Samsung; if it is not Samsung, it might be Amazon; if is it not Amazon, it is going to be someone else," he said. 
"Are we going to be able to sit here today and pick the major winners? No. But the disruption is structural. It is only going one way. And I don't think there will ever be a point where me or my successor, or his or her successor, is ever going to sit here and say their war is done and we won. This level of innovation is here to stay. 
"But we have got customers, we have got distribution, we have got brand, we have got product. So as long as we are adding to that investment and have the right execution focus, we should be able to be really competitive."

Saturday, October 31, 2015

States to Help Workers Save for Retirement

Australia put in place enforced retirement savings some 20 years ago. Interesting again how this is just starting to come to the USA. Aivars Lode
By David Harrison
Rose Hackenbruck knows she should be saving for retirement. But with a mortgage and a daughter to raise on about $43,000 a year, the 39-year-old bartender in Portland, Ore., doesn’t have much left at the end of the month. 
“That money quickly goes away if you don’t have something structured already set up,” said Ms. Hackenbruck, who is divorced. Her employer, like many bars and restaurants, doesn’t offer retirement benefits.
Something structured could be coming her way soon. 
In July, Oregon became the third state to enact legislation creating automatic individual retirement accounts for workers who don’t have retirement plans at work. The plans are an attempt to cushion the blow for millions of workers who could someday find themselves too old to work but short of savings, state officials said. They are also an attempt to protect taxpayers in the future, said Oregon Treasurer Ted Wheeler. 
“If people have not saved, they’re completely dependent upon government safety-net programs,” Mr. Wheeler said. 
The gradual but broad shift away from old-fashioned pensions—which provided lifetime retirement payments to retirees—has left millions of Americans unprepared for retirement, experts say.
In the private sector, nearly 44% of prime-age workers don’t have access to a retirement plan at work, according to Labor Department figures analyzed by Nari Rhee, a researcher at the University of California, Berkeley. About 46% of private-sector workers now take part in a workplace retirement plan, meaning almost 10% of workers have access to a plan but don’t participate.
“It’s shocking…that less than half of employed adults are covered by any kind of employer plan,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, which is working with Connecticut to set up a program. “There’s just a huge coverage gap out there.”
California was the first state to pass legislation in 2012 setting the stage for automatic retirement accounts for workers without coverage. Illinois enacted a similar law in January. Connecticut’s plan could be in place by next year, and legislation is pending in New Jersey and Massachusetts. In some states, such as Maryland and Maine, efforts have foundered in the legislature. For now, only Democratic-controlled legislatures have enacted the plans. 
The initiatives differ in the details, but all would feature automatic paycheck deductions—California, Oregon and Illinois are contemplating 3%—to be placed in individual retirement accounts. In all three states, workers would be automatically enrolled a feature designed to overcome people’s inertia about saving, but would be allowed to opt out. State boards would manage the programs. In Oregon, the plans would apply to all employers regardless of size, but California and Illinois exempt smaller employers.
The Oregon plan also could benefit self-employed and temporary workers. That would be good news for Diana Bartlett, who left a full-time job with benefits four years ago after she had her second child. Since then, she said she has worked a series of short-term jobs without retirement plans. “It makes me nervous that I have so little retirement savings,” said Ms. Bartlett, who hasn’t contributed to a retirement plan since she left her full-time job and estimates she has about $3,000 saved from her previous job.
For now, the state plans—even those passed by legislatures—are in the development stages, and none has yet begun withdrawing money from paychecks. But the idea has caught on. At least 18 bills have been introduced in 15 states this year dealing with state-sponsored retirement plans, up from 10 bills in seven states in 2013, according to the National Conference of State Legislatures.
“Given the proliferation [of bills] over the past few years, I think in 2016 you’ll see even more,” said Sarah Mysiewicz Gill, senior legislation representative at AARP, which has been advocating for the plans.
But a 41-year-old federal law protecting workers’ retirement investments could complicate the state efforts. The Employee Retirement Income Security Act places record-keeping requirements on employers who offer retirement plans and could make them liable if employee contributions aren’t invested properly.
The question is whether those requirements would apply to employers under the state-run plans, even if their role is limited to setting up the automatic deductions in the same way they set up payroll-tax deductions. If they do, that could be costly to employers and could erode support for the plans.
The Obama administration supports the state initiatives and has promised to unveil rules this year to help states navigate the regulatory pitfalls, which could clear up the ERISA question. The financial-services industry and some state chambers of commerce, however, oppose the plans, saying they risk drawing employers into the regulatory thickets of ERISA. 
“This is simply a state-government approach to try to solve a retirement problem that is better left to the private sector,” said John Mangan, regional vice president for state relations at the American Council of Life Insurers. “We question whether the state should enter a private marketplace that already has robust options for retirement plans for individuals and businesses.”
In response to industry concerns, Washington state enacted a compromise encouraging the private sector to set up voluntary individual retirement accounts for workers without access to workplace plans. Employers wouldn’t be charged administrative fees. Management fees on employees would be capped at 1%. And the state government would promote the accounts.
The idea, which industry supports, could be a model for states where the Oregon model is politically unfeasible, said state Sen. Mark Mullet, who sponsored the bill. That is likely to depend on how popular the plans are with employers, but Mr. Mullet is optimistic.
“The business owners, to be honest, most of their hearts are in the right place,” he said. “They would be happy to offer something, if it’s no skin off their backs.”
Whatever their design, the state plans wouldn’t guarantee a comfortable retirement for future generations. A study by the Employee Benefit Research Institute, a think tank funded by insurers, companies, unions and others interested in retirement issues, found that a mandatory 3% deduction would reduce the overall retirement-savings shortfall for working-age households by only 6.5%, in part due to the rising cost of long-term care for the elderly. Still, supporters see the plans as a first step, one that can be expanded upon later.
In Portland, Ms. Hackenbruck said she is ready to give up a bit of her paycheck for a slightly more comfortable old age. “I’m not trying to get rich,” she said. “I’m just trying not to be an impoverished old woman.”

Vodka Falls Out of Vogue in U.S., Posing Challenge for Pernod

I was fortunate enough to meet the president of of the Louisville Slugger some 14 years ago in Louisville. As discussions of a business transaction merged into dinner I was introduced to Mr Pickwiks 1968 vintage Bourbon. After sampling this delectable spirit I sat back and wondered why this was not a more widely known spirit. Previously, I had only experienced atrocious Jack Daniels and coke. Now I was sipping a spirit which was as sophisticated as Cognac and whiskey, however with a unique character. Aivars Lode
By Jason Chow
In the U.S., bourbon is in and vodka is out. That’s making Pernod Ricard SA, owners of the Absolut vodka label, a laggard in the world’s most important liquor market. 
For now, the shift isn’t hurting profits. Pernod, which owns a multitude of brands including Irish whiskey label Jameson and cognac marque Martell, is still expected to post sales and profit growth when it releases its results on Thursday. 
Boosted by a rebounding Europe, the stabilization of cognac sales in China and higher sales of local-distilled whiskeys in India, the company is expected to post a 7.9% increase in sales to €8.57 billion ($9.63 billion) and a 30% increase in net income to €1.32 billion, according to a FactSet poll of 29 analysts.
Revenues and income are also boosted by the low euro, which makes sales in stronger currencies count for more when converted into the company’s home currency. 
But in the U.S., Pernod’s organic sales are lagging at a time when the country represents the industry’s brightest opportunity as emerging markets start to shun high-priced drinks. 
In recent years, Pernod relied on countries like Brazil and China to increase sales as a growing middle class in rapidly developing countries indulged in imported spirits. However, the stalled economies in South America have slaked thirst for expensive liquor while an anticorruption campaign in China hit cognac sales particularly hard. 
Meanwhile, the U.S. market for spirits is booming as cocktail culture continues to grow and millennial drinkers renew their interest in American bourbon. The one casualty of this shift in tastes is the category that Pernod dominates: Vodka is out of vogue. 
Globally, the number of nine-liter cases of vodka consumed declined almost 2% between 2010 and 2014, according to the IWSR, a liquor market-tracking association. Meanwhile, whiskey consumption has risen almost 17% in the same period. 
In the all-important U.S. market, vodka volumes last year decreased 0.3% while whiskey sales grew 2.7%. American-made bourbons and Tennessee whiskey led the trend, up 7.4%, as drinkers also shunned Scotch whisky. 
Absolut, known for its splashy colorful campaigns and flavored liquors, has fast become an underachiever in a losing category: Sales volumes of the vodka label declined 3.3% in the past quarter, according to figures from the U.S. industry association NABCA. Absolut makes up about a quarter of all Pernod’s U.S. sales. 
“It’s not universal doom and gloom, but they’re in a tough situation,” said Trevor Stirling, a liquor analyst at Sanford C. Bernstein in London. “There are no quick fixes for Absolut. You have to reinvent the brand, and it’ll take three to five years.”
To be sure, Pernod has a large brand portfolio and is geographically diversified, deriving about 15% of its revenues from the U.S., 29% from Europe and another 42% from Asia and Africa. India is a particular bright spot, as its local-distilled whiskeys, led by its Royal Stag brand, are gaining market share. 
Still, if Pernod is ever going to reach its goal of overtaking U.K. giant Diageo PLC as the world’s top liquor company, it will have to find more pours in the high-value U.S. market with Absolut or via acquisition, the analysts say. 
Pernod’s rivals have already adapted to consumer trends. Diageo is building a distillery in Kentucky to expand capacity for its Bulleit brand bourbon, while Bacardi Ltd., best known for its rum brand, bought the Kentucky-based whiskey brand Angel’s Envy in March. 
“The U.S. is still growing as a market—unlike Western Europe. It has all the features of an emerging market but it’s a high-value one,” said Jeremy Cunnington, head of alcoholics drinks research at Euromonitor. “Pernod is short of brands there, particularly of American bourbons.”
Corrections & Amplifications
Absolut vodka makes up about a quarter of Pernod Ricard’s U.S. sales. A previous version of this article said the brand makes up half of U.S. sales.

How Do Innovators Spot Market Opportunities?

The following article articulates how innovators spot market opportunities, this is why I have written a couple of books as we bring knowledge from having seen it somewhere else before. Aivars Lode

By Leslie Brokaw
Executives need the ability to quickly spot both new opportunities and hidden risks. Asking the right questions can broaden perspective and shake up existing assumptions.
How well do you understand the implications of broad market trends and less visible undercurrents for your business? How much have you thought about how those trends impact your own strategic choices? 
Those are questions posed by Paul J.H. Schoemaker (Wharton School) and Steven Krupp (DSI) in their article “The Power of Asking Pivotal Questions,” in the Winter 2015 issue of MIT Sloan Management Review . The article builds on the authors’ book Winning the Long Game: How Strategic Leaders Shape the Future (PublicAffairs, 2014).
The authors provide three tips for companies whose goal is to stay at the front of their industries:

1. Learn from startups.

Innovators pay attention to what new companies are doing — and why. They ask: What do those companies see that I don’t? Schoemaker and Krupp recommend examining startups’ moves to detect market shifts and emerging opportunities from the outside in.

2. Go to conferences outside your function or industry.

“In its ‘Connect + Develop’ innovation program, Procter & Gamble Co. reaches out to companies outside the consumer products industry to share lessons and explore joint challenges,” write Schoemaker and Krupp. “Follow events in other regions and sectors, even if they seem unrelated to your business at first.”

3. Leverage current networks and join new ones.

How might you engage your existing networks more systematically to stay on top of new developments? Schoemaker and Krupp suggest joining interest groups in adjacent businesses or areas to expand your worldview and examine questions you don’t typically consider.
“The best entrepreneurs excel at peeking around the corner and seeing the future sooner,” the authors write. “We’ve found that leaders can learn to anticipate better by simply being more curious, looking for superior information, conducting smarter analyses and developing broader touch points with those in the know.”
Schoemaker and Krupp highlight the entrepreneur Elon Musk of Tesla Motors, SpaceX and SolarCity as a model for his ability to spot unmet market needs. 
Musk has said that his forward-thinking style, exemplified in his vision of commercializing electric vehicles for the mass market, comes from “just trying really hard — the first order of business is to try. You must try until your brain hurts.” Musk envisioned electric vehicles as the future for the automotive industry but also thought that traditional car companies would take too long to fully embrace the challenges and opportunities.
One of Musk’s biggest tasks with Tesla was to demonstrate that electric cars could be a mainstream product. He expanded his enterprise to include global distribution and battery manufacturing shortly after Consumer Reports rated the Tesla Model S the number one car it ever tested.
“Strategic leaders are focused on the future and are masters at asking discerning questions and exploring ideas and options that are outside the mainstream,” Schoemaker and Krupp note. “They are wary of status quo views and prefer honest, transparent questions that focus on how much, or how little, is really known about the issue at hand.”

Global Gold Demand Drops 12% in Second Quarter

Like oil, gold is hitting a 6 year low and the US currency which was predicted to demise has not. Aivars Lode

Gold has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011

By Ese Erheriene

Global demand for gold plummeted 12% to a six-year low in the second quarter, as vital buyers in Asia lost their appetite for the metal, the World Gold Council said Thursday.
Demand for the precious metal weighed in at 914.9 tons between March and June of this year, down from 1,038 tons during the same period in 2014, according to the industry body’s latest Gold Demand Trends report.
The price of gold for immediate delivery has been under pressure since it hit a peak of $1,920.94 a troy ounce in September 2011, falling more than 40% as production outstripped demand and inflation stayed mainly low, taking away a usual prop for the precious metal, among other factors. Gold prices ended the quarter down 3%.
“This has actually been a challenging quarter; you’ve [the] evidence in the data,” said Alistair Hewitt, head of market intelligence at the London-based World Gold Council.
The decline came as global demand for jewelry fell by 14% in the second quarter to 513.5 tons, compared with 594.5 tons the year before. Jewelry makes up about 60% of global gold consumption.
A rise in equity purchases and expectations of a rate increase by the Federal Reserve sapped global demand for gold, an asset that doesn’t pay interest and struggles to compete with other assets that offer a return and are deemed safe, like U.S. Treasury bonds.
Global investment demand was down 11% year-over-year, to 178.5 tons from 199.9 tons in the same quarter in 2014. However, fears of a Greek exit from the eurozone managed to support bar and coin demand in the Eurozone countries in the second quarter, with demand up 19% to 46.5 tons from 39.2 tons last year.
Global gold supply declined 5% year-over-year to 1,032.6 tons. This was driven by a drop in gold recycling to 251.1 tons, an eight-year low.
India and China, which together account for roughly half of global gold consumption, both saw demand slide.
The biggest loser was India, where lower rural incomes due to difficult weather conditions over the quarter and fewer auspicious days on which to hold celebratory events in the third quarter dented demand. Planning for these events is usually done a couple of months prior, hence the effect being felt between March and June.
Total gold demand in India slid 25% to 154.5 tons in the second quarter, from 204.9 tons last year. Jewelry purchases were 118 tons in the second quarter, down 23% from 152.6 tons a year earlier.
Meanwhile in China, the attraction of the stock market bubble meant investors piled their money into equities instead of gold. Total gold consumption in China fell 3% to 216.5 tons in the second quarter, compared with 224.1 tons over the same period in 2014. Demand for jewelry fell 5% to 174.4 tons in the second quarter, from 184.6 tons over the same period last year.
In the second half of the year, demand is expected to pick up on the back of gold’s sharp price drop in July, which should attract bargain-hunting by buyers in Asia. Prices shed almost 7% of their value last month. Gold is priced in dollars and so it becomes more expensive for buyers who use weaker currencies to fund their precious metal purchases.
Certainly, the start of wedding and festival season in India, the return to gold by investors burned by the stock market in China and the recent devaluation of the yuan by the Chinese central bank should bolster demand.
“What we’ve seen ... with the devaluation will continue to support the investment case for gold. We often see people turning towards gold when threatened by weak currencies and I think that’s clearly the situation we’ve seen in China over the past few days,” said Mr. Hewitt.
According to the World Gold Council, full-year gold demand is forecast at between 4,200 tons and 4,300 tons. For India and China, the 2015 outlook remains the same and both are seen to weigh in between 900 to 1,000 tons.
Spot gold was trading up 1.4% at $1,124.48 troy ounces on the London spot market, a three-week high.