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Gold Fabrication Demand Rises 1.4% In 2012 To 70.8 Million Ounces –CPM Group

By Kitco News
Tuesday March 26, 2013 9:00 AM

(Kitco News) - Gold fabrication demand rose 1.4% in 2012 to 70.8 million ounces, driven by a strong increase in Japanese demand from 2011, when natural disasters disrupted economic activity, healthy demand from China, and a modest increase in demand from India, said a New York-based consultancy.

Slightly offsetting the gain was a decline in European, Middle Eastern and Far East demand, said the CPM Group in its annual “Gold Yearbook” report released Tuesday.

Fabrication demand for gold accounted for 59.5% of supply in 2012; this is down from the 2005 level of 84% and reflects a drop in jewelry demand. “The bulk of fabrication demand, jewelry, is a highly price sensitive source of demand,” they said.

Of the total fabrication demand in 2012, 79% was for jewelry, which compares to 88% in 2005, they said. China and India remain the two largest sources of jewelry demand. Chinese demand rose 11.2% in 2012 to 16.2 million ounces, while Indian demand rose to 7.7 million, up 3.8% from 2011.

Japan’s demand came as a result of a rebound in pent-up demand following a 2011 earthquake and tsunami. Much of that came from electronics demand, as Japan’s mobile device market expanded 17% in 2012, and electronics demand in Japan is seen growing 3.5% in 2013.

For 2013, gold fabrication demand in total could rise to 75.5 million ounces, up 6.6% from 2012, as an expected decline in the annual average price of gold could lift demand this year, coupled with slightly stronger global economic growth, CPM Group said.

For those reasons, CPM Group said total jewelry fabrication demand for gold could rise 7.9% in 2013, to total 60.2 million ounces.

“Going forward, the gold market may witness a return to jewelry demand growth after a decade of declines, backed by weakening gold prices and slowly rising real incomes in many parts of the world,” CPM Group said.

The firm said 43% of the 4.7 million-ounce increase in demand in 2013 is expected to come from China, where demand is forecast to rise 11.4% this year. Indian demand is seen improving over the 2012 pace.

Jewelry demand was up 1.3% in 2012, at 55.8 million ounces, following a 5.4% decline in 2011, when prices hit a record nominal intraday peak of $1,920. With prices holding between $1,530 and $1,800, “this price consolidation helped foster a return to jewelry demand growth last year,” they said.

Industrial demand for gold rose to 15 million ounces, up 1.6% from 2011, with growth in electronics demand the only source of increased industrial demand for the yellow metal, they said.

CPM Group said it is watching a structural shift in electronics demand as the growth in tablet use could mean reduced gold consumption as metal content in tablets is less than in personal computers.

Currently computer demand for gold accounts for about 25% of total electronics demand. “Should this downward shift continue to occur, gold electronics demand could decline toward as low as 7 million ounces over the next few years. The downward shift in demand for computers, however, likely would be limited as the decline is mostly due to lower portable computer sales,” they said.

In 2013, industrial demand is seen rising to 15.2 million ounces, up 1.8 million from 2012, they said. Broken down, electronics demand could rise 3.1%, with dental and medical gold demand seen falling 4.4%.

CENTRAL BANKS STILL BUYERS

2012 was the fifth consecutive year of official-sector purchases of gold, with a combined 9.5 million ounces reportedly purchased, up from 9.2 million bought in 2011, but down from 10.8 million bought in 2010, they said.

The largest buyers were Russia, Brazil, the Philippines, and Kazakhstan, all of whom bought more than 1 million ounces each last year, CPM Group said. Russia was the top buyer of gold in 2012, adding 2.4 million ounces to its reserves, the smallest annual increase since 2008. At the end of 2012, Russia’s central bank had 30.8 million ounces in gold reserves. The country usually buys from domestic producers. In all, 24 central banks increased their holdings, they said.

“Much of the move to buy gold in recent years has been driven by a desire to diversify reserves and to reduce currency risk. Many gold market participants and observers view these official-sector purchases as a boost in confidence in or strength of the domestic currency,” CPM Group said.

Sales of gold by central banks were 393,887 ounces on a cumulative basis, the smallest annual sale of gold on record. The only central banks to sell gold last year were Sri Lanka, Germany, the Czech Republic, Macedonia, France, and Malta, they said.

For 2013, net additions to central-bank reserves are seen rising to 10.5 million ounces in 2013, with much of this is expected to come from developing countries as well as countries with large foreign exchange reserves, CPM Group said.

 

By Debbie Carlson of Kitco News dcarlson@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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