Global gold demand softens 15%

[SINGAPORE] Global gold demand slumped 15 per cent last year as heavy selling in exchange-traded funds (ETFs) outstripped record-high consumer demand for the metal, according to the World Gold Council. Total demand fell to 3,756 tonnes, from 4,416 tonnes in 2012.

The full-year numbers that the industry body released yesterday confirmed what data in recent quarters had suggested: that China overtook India to become the largest gold consumer.

China consumed 1,120 tonnes in jewellery, bars and coins last year, compared with 848 tonnes in 2012. India's consumption rose 13 per cent to 975 tonnes in spite of measures introduced to limit gold demand, as more gold got smuggled into the country.

2013 marked the year of the consumer, said the council. A plunge in gold price last April sparked a surge in buying by retail investors in China and India, and also an unprecedented flow of gold from vaults in Switzerland and London to these countries.

"(Asian investors) have been sitting on the sidelines for a couple of years (as gold prices rose)," Albert Cheng, the council's managing director of the Far East, told The Business Times. "Even when prices were volatile last year, we have seen the people coming in, and they are comfortable to accumulate gold, particularly the value seeker."

In the fourth quarter last year, jewellery demand in Europe and the US, where consumer sentiment has been improving, picked up.

The council attributed the lag to the time it took for lower international prices to feed through to lower levels in the West, unlike in India and China where prices are adjusted on a daily basis. While the growth in consumer demand of 679 tonnes last year was the largest year-on-year increase since the council started records, it was still unable to absorb the total outflows in ETFs of 881 tonnes - a third of global gold production from mines.

Hedge funds and institutional investors began withdrawing from gold ETFs last year as speculation of a reduction in the US monetary stimulus started. The price of gold fell 28 per cent last year, its first bearish turn in 13 years.

But bullion has staged a surprise comeback since the start of this year, with its price rising 9 per cent to about US$1,313 an ounce, supported by weaker-than- expected macroeconomic data. This has injected more optimism into the gold market.

Outflows in gold ETFs stabilised in January, then reversed in February, said ANZ commodity strategist Victor Thianpiriya. "That suggests to us that maybe some of the long-term investors are getting back into gold as well. It's a bit of a mixed picture, but it certainly looks to us it's not as bearish as people were towards the end of 2013."

While he expects a price pullback soon on profit-taking, he remains positive on gold in the medium term. ANZ has a gold price forecast of US$1,450 for the end of this year. "China is still buying a record amount of gold," he said, adding that supply would be tighter this year without the same level of ETF liquidation that was seen last year.

For Philip Klapwijk of Hong Kong-based Precious Metals Insights, the outlook this year is still bearish. Most of the demand in China was accelerated last year when prices fell and would be hard to sustain, he said. The reversal in ETF flows also might not last. "I don't see what has changed fundamentally to put gold into the bull market. I will be surprised if this is the beginning of a recovery in gold."