Gold Demand Hurt By Surging Equity Markets In 2017 - WGC

Johannesburg SA (Feb 6)  Gold demand rallied in the fourth quarter of 2017, but it was not enough to save last year from an annual drop, the World Gold Council (WGC) said in its latest report.

Overall demand declined 7% to 4,072 metric tons during fiscal year of 2017, down from 4,362 metric tons reported in 2016, the WGC said in its “Gold Demand Trends Full Year 2017” report.

Rising equity markets and changing central-bank policies were mainly behind the drop.

“It’s not surprising to see overall gold demand down given the backdrop of monetary policy tightening and strong equity markets in 2017, but the market is not in bad shape,” the WGC’s head of Market Intelligence, Alistair Hewitt, said in a press release published on Tuesday.

Lagging Investment Demand

Investment demand was down 23% year-over-year at 1,232 metric tons last year.

WGC said there was a significant pullback in purchases of gold bars and coins, down 2%, driven by a lackluster U.S. market.

Annual inflows into gold-backed ETFs were also down 63%, registering only 202.8 metric tons in 2017 after 546.8 metric tons in 2016.

“European-listed gold-backed ETFs accounted for 73% of net inflows, with investors keenly attuned to geopolitics and negative interest rates,” the WGC report noted.

Recovery Of Jewelry And Technology Demand

On a positive note, the gold market saw a 4% recovery in jewelry demand last year, as both Chinese and Indian consumer sentiment was lifted. This marked the first increase in five years.

But, the WGC added that jewelry demand still remains weak compared to historical standards.

Also, technology use was on the rise for the first time in eight years, up 3% on an annual basis, with more devices using gold, including smartphones and laptops.

“Jewelry demand picked up as economic conditions improved in China and a policy change in India removed a barrier to demand, while next-generation smartphones boosted gold demand from technology companies,” Hewitt said.

Central banks continued to buy the precious metal, but official gold reserves were down 5% in comparison to 2016, with 371 metric tons bought.

“Russian gold reserves increased 224t – the third consecutive year of +200t growth,” noted the WGC.

Total gold supply fell 4% to 4,398 metric tons in 2017, dragged down by recycling, which was down 10% on an annual basis.

“East Asian and Middle Eastern markets drove declines in recycling during 2017,” the report said, adding that “unusually high recycling levels in 2016 were the main cause of a 10% y-o-y decline in 2017, as recycling activity normalized.”

Mine production, on the other hand, edged up to a record high of 3,269 metric tons last year.

“New mine starts in recent years have mostly served to fill the gap left by production losses elsewhere, which has led to a relative plateauing in global output,” the report said.

Q4 Rally Led By Investment Demand

Despite an annual drop in demand, Q4 was positive quarter, with demand rising 6% on an annual basis to reach 1,095.8 metric tons.

The increase was driven by investment demand, which was up 41% during the last quarter of 2017.

Jewelry and technology demand rose 3% and 5% respectively.

“Indian jewelry demand recovered in Q4, gaining 4% y-o-y to reach 189.6t, the highest fourth quarter in our 17-year series,” the report pointed out. “Rupee gold prices trended lower during the quarter, which proved positive for demand.”

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