Gold demand rose to 2-year high on investor, central bank buying

[LONDON] Gold demand reached two-year high in the fourth quarter as investors bought more bars while central banks sought a haven from oil's slump and concerns about a stumbling economy.

Global consumption rose four per cent from a year earlier to 1,117.7 metric tons in the three months through December, the World Gold Council said in a report Thursday.

Central bank demand increased by 25 per cent in the quarter, while prices near a five-year low led to the biggest jewelry purchases for a second-half period in more than a decade.

"It was a year of two halves, with the first and second quarters quite weak, but things ticked up in the second half," Alistair Hewitt, director of market intelligence at the London- based council, said by phone.

"Central banks were very important and we saw a decent amount of jewelry demand."

The strong end to the year meant that annual demand was little changed at 4,212.2 tons, the council said. While gold posted a third successive decline in 2015 on expectations for the first US interest rate in almost a decade, bullion has rebounded to become this year's best performing commodity as global market turmoil spurred demand for a haven.

China and India, the biggest consumers, will lead sustained buying, the council predicts.

Central banks added metal to reserves for a 20th consecutive quarter, buying 167.2 tons to take the full-year total to 588.4 tons, according to the report.

Holdings in exchange-traded products, which fell by 68.6 tons last quarter, have rebounded about 100 tons so far this year, data compiled by Bloomberg show.

China remained the biggest buyer last year, accounting for more than a quarter of the global total. The country's purchases rose three per cent to 250.6 tons in the fourth quarter, and India's gained six per cent from a year earlier.

While Middle East buying dropped four per cent as lower oil prices hurt income, Iran's demand jumped 16 per cent to 13.4 tons.

Recycling slipped 12 per cent in the three months through December, the report showed. Mine output contracted two per cent last quarter, with annual production growing at the slowest since 2008.

The slump in prices has forced some of the biggest producers to scale back investment in future output.

"What's going to be affecting mine production in 2016, 2017 and 2018 are all decisions that have been made since 2012," Mr Hewitt said.

Those are "decisions in terms of mothballing sites, in terms of reducing exploration and development budgets and in terms of cutting costs," he said.

BLOOMBERG