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WGC: Gold Market Finds Balance In 2014

By Neils Christensen of Kitco News
Thursday February 12, 2015 7:15 AM

(Kitco News) - The best way to describe the gold market in 2014 was it was a year of stabilization, according to the latest research from the World Gold Council (WGC).

Looking back at the year, the WGC said that gold demand ended the year on a strong note with total demand for the fourth quarter growing to 987.5 tonnes, an increase of 6% compared to the same quarter in 2013.

However total demand for the year came in at 3,923.7 tonnes, down 4% on the year. At the same time total supply was little changed at 4,278.2 tonnes. In an interview with Kitco News, Juan Carlos Artigas director of investment research said data from last year needs to be taken in the context that 2014 followed an “outlier” year. In 2013, the biggest price drop in gold was seen in more than 30 years, this unleashed pent-up demand from Asia.

“I think last year we saw a normalization of markets and stabilization, which I think is healthy,” he said. “I think the data from 2014 highlights a balanced market.”

Similar to 2013, Asia continues to be the dominant player in the gold market. Although demand was down in India and China in 2014, the WGC said that demand in those two countries has grown 71% in the last 10 years. Looking at last year, India and China accounted for 54% of consumer gold demand, an increase from 33% in 2005.

“The bottom line is that both China and India represent significant growth for the gold market. They are extremely important, said Artigas.

Artigas added that one theme they saw last year was the continued infrastructure development in the relatively young Asian market. Not only does gold continue to shift from west to east but India and China are using their dominance to develop a new marketplace.

“Innovators in Turkey, India, China and South East Asia are developing gold products, services and platforms across the entire supply chain to boost market development. Consumer choice is expanding and the supply chain is becoming more efficient and more transparent,” the report said.

Jewelry, Investor And Central Bank Demand Remain Strong In 2014

Looking at some of the positives for 2014, the council said that jewelry demand remains strong but was unable to meet the significant growth seen in 2013. One area for strong jewelry demand in 2014 was the U.S. - hitting 132.4 tonnes, the highest level in five years.

“That being said, it clearly has to be acknowledged that the market remains far below pre-crisis levels of jewelry demand, which between 2000 and 2006 averaged 360t per year,” the report said.

Central banks were also another bright spot for the gold market as they absorbed 477.2 tonnes of gold last year. Russia led the pack adding 173 tonnes to its reserves. Artigas said that the WGC continues to expect central banks, especially in emerging market economies to diversity away from the U.S. dollar, purchasing more gold.

Another important shift in the gold market in 2014 was an improvement in the investor market. According to the data compiled by the WGC, investment demand grew by 2% last year to 904.6 tonnes, up from 885.4 tonnes reported in 2013. However the growth was mostly due to smaller outflows, which was more than 5 times lower when compared to outflows in 2013. 

“ETF redemptions slowed to a fraction of the hefty 2013 total and therefore acted as less of a drag on investment,” the report said.

For investment demand to pick up, investors needed to see more than just stabilization in prices, the WGC said. 

In particular, the WGC noted that, "Chinese, investors, with already-stuffed coffers, needed a strong price signal to add to their holdings.”

“The flow of gold into China has far exceeded the amount needed to meet domestic jewelry and investment demand in recent years,” the report added.

The one area of demand that remains weak is the technology sector. The council noted that gold demand in technology contracted to 389 tonnes in 2014, the lowest point since 2003.

“Sluggish economic conditions in key markets and ongoing substitution away from gold were the driving force behind the 5% drop,” the report said.

Although demand for gold was decent in 2014, there was still plenty of supply in the marketplace. The council said that mine production reached a record level of 3,114.4 tonnes, the only reason why the supply wasn’t stronger was due to recycling dropping 11% to a seven-year low of 1,12.17 tonnes.

Although mine production hit record levels, the WGC said that they don’t see that as sustainable. They noted that a lower price environment has prompted “severe” cut backs in exploration for mine development.

“So although production will remain at – or close to – this record level for next year, the potential for existing operations to generate greater volumes of output is limited,” the report said.

By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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