Gold demand up 2% in 2016: WGC

The World Gold Council released its report on Gold Demand Trends for 2016. The report suggests that the 2016 full-year gold demand rose 2 percent, thereby hitting a 3-year high of 4,308.7t. The year was the second best year for ETFs on record. Global demand for gold-backed ETFs and similar products (ETFs) was 531.9t - the highest since 2009. Q4 saw outflows. Bar and coin demand resurged in Q4. Having been subdued for most of the year, the price fall in Q4 was the buying opportunity many retail investors had been waiting for. Q4 was China’s strongest quarter for bar and coin demand since Q2 2013.

The year closed with 8 percent increase in gold prices. Having risen 25 percent by the end of September, gold relinquished some of its gains in Q4 following Trump’s conciliatory acceptance speech and the FOMC’s interest rate rise.

The year 2016 saw a 7-year low for jewellery demand to 2,041.6t, falling 15 percent on y-o-y basis. Rising prices for much of the year, regulatory and fiscal hurdles in India and China’s softening economy were key reasons for weakness in the sector. India’s shock demonetisation policy brought the market to a virtual standstill. An initial rush for gold following the policy announcement came to a swift halt in the ensuing cash crunch. India’s gold demand stood at 675.5t in 2016, falling 21.2 percent from 857.2t in the previous year. Demand by value declined 15 percent to $27.2 billion in 2016 from $32 billion a year ago. “India’s gold demand for 2016 fell sharply, though the fourth quarter demand grew by 3 percent to 244 tonne, due to softened gold prices that coincided with Diwali and wedding season. Demand was affected as the industry faced challenges, including PAN card requirement, Excise duty on jewellery, demonetization and the publicity around income disclosure schemes,” WGC managing director, India, Somasundaram PR said. Indian jewellery demand saw a 22 percent dip in the year, at 514t compared to 662.3t in 2015. The Indian jewellery industry faced nation-wide jewellers strike followed by weak sales and the demonetization.

Recycling in India was hit by the government’s shock demonetization announcement, falling 36 per cent y-o-y and 67 percent quarter-to-quarter. The liquidity crunch affected jewelers who struggled to obtain cash to purchase gold from consumers, blocking a key recycling channel and resulting in a surge in gold-for-gold exchange. In East Asia, Q4 recycling was up 7 per cent y-o-y, but down 44 percent from Q3 as the focus switched to buying gold ahead of the Chinese New Year (28th January). Local Indian gold price was hardly hit by the cash crunch but the effect is likely to be temporary as healthy income and good monsoon will support the demand the gold forward. Somasundaram said, “We anticipate that 2017 will see a demand range of 650-750 tonne due to the introduction of the Goods and Services Tax (GST) coupled with gradual adaptation to the previous year’s policy changes.”

Chinese jewellery demand declined further from its 2013 peak; tight supply conditions constrained the market in Q4. India and China – the two largest markets – together accounted for almost 80 per cent of the 347.0t decline in full year demand.

Overall, central bank demand was the lowest since 2010 with net purchases (383.6t) down 33 percent over 2015, due in part to increased pressure on FX reserves. Despite this, 2016 was the 7th consecutive year of net purchases by central banks.