LONDON Central bank gold demand hit its lowest in nearly six years in the first quarter as Chinese buying dried up, the World Gold Council said in a report on Thursday, feeding into an 18 percent year-on-year drop in overall demand.
The official sector added just 76 tonnes of bullion to its holdings in that period, the industry-funded WGC said in its latest Gold Demand Trends report, down by more than a quarter from a year before and the lowest of any quarter since Q2 2011.
China, a major official sector buyer of gold in recent years, has held off making any additions to its reserves since October, the first time it has done so since it started releasing quarterly reserves data in 2015.
A focus on capital outflows may have been weighing on the Chine2se central bank's interest in gold, the WGC's head of market intelligence Alistair Hewitt said.
"China's forex reserves have declined significantly over the last 18 months, edging beneath $3 trillion at the start of this year," he said. "At the same time gold as a percentage of FX reserves has increased. That is partly a function of the decline in FX reserves and also the increase in the gold price."
The WGC is forecasting central bank purchases of 250-350 tonnes this year, he said, down from 377 tonnes in 2016. Russia and Kazakhstan are expected to remain buyers of gold.
The first-quarter drop in central bank buying fed into an 18 percent fall in global gold demand to 1,034.5 tonnes, the weakest first quarter since 2010, the WGC said.
Investment in gold-backed ETFs slipped back from the previous year's record levels, though it held firm at 109 tonnes, versus selling of 193 tonnes in the previous quarter.
Balancing that, global jewellery consumption, the single largest demand segment, was a touch higher, while coin and bar demand rose 9 percent.
Chinese consumer demand edged up 8 percent to 297.3 tonnes as higher coin and bar demand offset softer jewellery offtake, while Indian demand also rose 15 percent to 123.5 tonnes as the impact of demonetisation eased, releasing pent-up demand.
Chinese demand is forecast to reach 900-1,000 tonnes this year, against 913 tonnes last year, while Indian consumption is forecast at 650-750 tonnes, against 660 tonnes in 2016, the WGC said.
(Reporting by Jan Harvey, editing by David Evans)