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FOCUS: WGC: Global Gold Demand Posts Second-Highest Quarter Ever; India Remains Top Consumer In 2012

By Allen Sykora of Kitco News
Thursday February 14, 2013 1:01 AM

(Kitco News) - World gold demand from October through December was the second strongest of any quarter on record and 2012 was the second-highest ever for a full year behind 2011, the World Gold Council said Thursday in its quarterly report on demand trends.

Fourth-quarter demand was rose 4% year-on-year to 1,195.9 metric tons, while the value of the gold demand rose 6% to a near-record $66.2 billion, the Gold Council said. Growth in jewelry and central-bank demand exceeded declines in the investment and technology sectors, the report said.

“The strength in the fourth quarter was very much driven by a recovery in India,” said Marcus Grubb, managing director of investment for the WGC. Indian demand jumped 41% in October-December from the same period a year ago, helping the country maintain its role in 2012 as the world’s largest consumer, he said.

Full-year 2012 global demand dipped 4% to 4,405.5 tons from a record 4,582.3 tons in 2011. An increase in demand from institutional investors and central banks only partly offset a year-on-year decline in consumer demand, the report said.

The value of gold demand for 2012 hit a record of $236.4 billion during a year when the average price of gold rose 6% to the highest ever at $1,669 an ounce.

Data for the report is compiled by the consultancy Thomson Reuters GFMS.

An 11% rise in world fourth-quarter jewelry demand took the total to 525.3 metric tons, which was the highest of any quarter since the first quarter of 2011, the WGC said. However, for the full year, jewelry demand fell 3% to 1,908.1 tons, mainly due to the weaker Indian rupee, the WGC report said. The two largest jewelry-consuming nations of India and China accounted for 56% of annual global jewelry consumption.

Combined global investment demand for bars, coins and exchange-traded products in the fourth quarter fell 8% year-on-year to 424.7 tons, the WGC said.

“The year-on-year decline is partly a function of Q4 2011 having been a strong quarter, but also reflects investor hesitation in identifying gold price signals during the quarter,” the WGC said. “The broad sideways consolidation in the gold price over recent months reflected uncertainty, which was evident also in investor behavior – particularly among the smaller, more retail-oriented investor community, where demand for bars and coins was relatively subdued in the fourth quarter.”

Still, the WGC said, bar and coin demand of 336.6 tons was 26% higher than the five-year quarterly average of 268.1, while fresh exchange-traded-product demand of 88.1 tons was in line with its five-year quarterly average of 88.8.

“Although some markets lacked the fresh impetus required to fuel a strong upsurge in demand, a general awareness of gold’s attractiveness in times of uncertainty seems to have sustained both institutional and retail elements of the market at historically elevated levels,” the WGC said. 

For the full year, global investment demand was down 10% to 1,534.6 tons. However, when adding in a positive contribution from over-the-counter investment and stock flows (a measure of the less transparent institutional elements of the market, as well as being a statistical residual), total investment of 1,582.5 tons was a more modest 3% lower than 2011, the WGC reported.

The WGC cited a divergence in investment flows, with a 17% drop during 2012 in demand for bars and coins but a 51% increase for exchange-traded funds and similar products.

Net central-bank buying in the fourth quarter was 145 tons, up from 112.8 in the same period of 2011. For the full year, central-bank net purchases were 534.6 tons, the most since 1964 and up from 456.8 in 2011.

Meanwhile, gold demand for technology fell 3% year-on-year in the fourth quarter to 100.9 tons, which the WGC blamed on “lackluster consumer sentiment in key markets” and ongoing substitution into lower-priced alternatives. This sector includes electronics, other industrial uses and dentistry. For the full year, technology-sector demand contracted by 5% to 428.2 tons.

India Retains Ranking As Top Gold Consumer In 2012

Full-year 2012 demand in India was 864.2 metric tons, while China was the second-largest consuming nation at 776.1 tons.

Grubb said India’s demand started the year slowly but picked up, whereas Chinese demand began strongly but abated in the third quarter before flattening in the fourth. “Looking forward, it’s clearly still a foot race between the two markets as to which is the biggest,” he said.

For 2013, the WGC looks for Indian demand to be in a range of 865 to 965 tons. Chinese demand is projected to be between 780 and 880.

The full-year Indian demand was down 12% from 986.3 in 2011. However, demand in the final three months of the year increased 41% from the same period in 2011 to 261.9 metric tons.

Some of this was a continued recovery from weakness early in 2012 that was triggered by factors such as higher import duties and a weaker rupee that made gold more expensive for Indians in their own currency, Grubb explained. Also, India’s Diwali festival came later in the year, during mid-November rather than late October as in 2011, meaning more of this seasonal demand occurred in the fourth quarter.

Further, there were worries that Indian import duties on gold would rise again, which the government announced in early 2013. “There was some buying ahead of that in December,” Grubb said.

For the fourth quarter, India’s jewelry demand rose to 153 tons from 113.5 in the same period a year earlier. Bar and coin demand rose to 108.9 tons from 72.

The World Gold Council report described 2012 as a “year of two halves” for Indian demand. “Following a first half in which consumers faced headwinds in
the form of higher import duties, market turmoil over proposed measures to curb gold imports and a sharp rise in the local price of gold, Indian demand staged a strong revival in the second half of the year.”

Indian consumer demand—including gold jewelry, bars and coins--in the first half of 2012 was 36% lower than the first half of 2011, the report said. However, the second-half comparison showed a 23% year-on-year increase.

China’s full-year demand of 776.1 tons was down marginally from 779.8 tons in 2011. Early in 2012, there were some forecasts that China would take over as the world’s top consumer for the full year, before a slowing in Chinese economic growth in the third quarter left the country’s demand relatively flat for the year, Grubb said.

China’s fourth-quarter demand was 202.5 tons, with 137 coming from jewelry and 66.5 from bars and coins, according to the report. This compares with fourth-quarter 2011 figures of 199.6 tons of total demand, of which 135.6 were jewelry and 64 tons for bars and coins.

By Allen Sykora of Kitco News; asykora@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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