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WGC: 2018 Global Gold Demand Boosted By Central-Bank Buying

Kitco News

Editor's Note: Updating earlier story with more details from report.

(Kitco News) - Global gold demand rose 4% in 2018, fueled by the greatest amount of central-bank buying in half a century, said the World Gold Council Thursday in its quarterly report on demand trends.

Gold demand last year climbed to 4,345.1 tonnes from 4,159.9 in 2017. Fifteen percent of this demand came from central banks, which collectively bought 651.5 tonnes of gold, the report said.

The central-bank tally was second-highest total on record and represented a year-on-year increase of 74%, the WGC said. Further, net purchases were the most since the U.S. ended dollar convertibility to gold in 1971, the report said.

A larger number of central banks purchased the yellow metal than in recent years as they sought reserve diversification. Russia, Turkey and Kazakhstan remained key buyers, with Russia purchasing more than 200 tonnes for the fourth straight year. However, China’s central bank bought just under 10 tonnes in December after a long absence, and a number of European central banks were in the market. In October, Hungary upped its official reserves 10-fold to 31.5 tonnes. Poland, India, Mongolia were also noted buyers.

“Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and refocus their attention on the principal objective of investing in safe and liquid assets,” the World Gold Council said.

Central banks now collectively hold nearly 34,000 tonnes of gold, the WGC said.

Investment Demand Rises; Jewelry Stable

Gold-backed exchange-traded funds posted an inflow during 2018 of 68.9 tonnes, reversing from what at one time was an outflow, as fourth-quarter inflows totaled 112.4 tonnes. Still, the year-on-year increase was 67% less than the one in 2017.

“Stock-market volatility and signs of faltering economic growth in key markets fueled a global Q4 recovery, but Europe was the only region to see net growth over the year,” the WGC said.

For the first time since 2012, the total value of all gold ETF holdings finished the year above $100 billion, the World Gold Council said.

Retail investment in gold bars and coins rose by 4% in 2018 to 1,090.2 tonnes, the report said. Coin demand surged to a five-year high of 236.4 tonnes, the second highest on record, thanks to a surge in the second half of the year.

“Coin demand flourished in a few countries, most notably Iran and South Africa, where retail investor concerns around stock-market volatility, currency weakness and geopolitical uncertainty were common themes,” the report said.

Demand for gold bars held steady at 781.6 tonnes, the fifth straight year this was in a range of 780 to 800. “China recorded another good year, with annual bar and coin demand steady at 304.2 [tonnes],” the report said.

Meanwhile, in the U.S., bar and coin demand was 28.1 tonnes, its lowest level since 2007. The WGC blamed this on a buoyant stock market and expectations for higher interest rates, which cooled investor interest in gold.

Full-year jewelry demand was roughly steady at 2,200 tonnes.

“Gains in China, the U.S. and Russia broadly offset sharp losses in the Middle East,” the report said, although noting that Indian demand was basically stable, dipping just four tonnes to 598.

Gold used in technology climbed marginally to 334.6 tonnes, held back by a 5% decline in the fourth quarter, which the report blamed on slowing smart-phone sales, the trade war and mounting uncertainty over global economic growth.

Meanwhile, annual gold supply rose 1% to 4,490.2 tonnes, with mine production inching up 1% to an all-time high of 3,364.9 tonnes.

“Although slowing in recent years, this is now the 10th year of annual growth and the highest level of annual mine output on record (eclipsing the previous record in 2017),” the report said.

In the fourth quarter, mine output of 854.1 tonnes was down 2% from the record high achieved in the third quarter.

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