Gold Demand Rose 3.8% in Fourth Quarter, Narrowing Annual Drop

Gold demand rose 3.8 percent in the fourth quarter as Indian purchases jumped, narrowing the first drop in annual usage in three years, the World Gold Council said. India remained last year’s biggest buyer, ahead of China.

Global demand gained to 1,195.9 metric tons in the quarter, the most ever for an October-to-December period, from 1,151.7 tons a year earlier, as Indian consumption surged 41 percent, the London-based industry group said today in a report. Jewelry usage rose 11 percent to the highest since the first quarter of 2011, leaving total demand for 2012 down 3.9 percent at 4,405.5 tons. That’s still 15 percent more than the five-year average.

Purchases in India, which the council had expected to be replaced by China as the top buyer, rose toward year-end on seasonal buying and expectations of higher import duties, it said. While holdings in gold-backed exchange-traded products reached a record in December as prices posted a 12th straight annual gain, the metal failed to set an all-time high for the first time since 2007. China’s economic growth accelerated for the first time in two years in the fourth quarter.

“The real driver was the rise in jewelry, and within that you saw India being key” in the fourth quarter, Marcus Grubb, managing director of investment research at the council, said yesterday by phone from London. “China’s economy is now re-accelerating quite strongly into January and February. Both Indian and Chinese demand will be higher in 2013.”

Gold for immediate delivery traded at $1,644.65 an ounce in London yesterday, down 1.8 percent this year. Prices averaged a record $1,717.86 in the fourth quarter, up 2.1 percent from a year earlier and 3.9 percent higher than the third quarter. They averaged an all-time high $1,669 in 2012, boosting the value of last year’s demand to $236.4 billion, the most ever.

Jewelry Demand

Global jewelry demand rose to 525.3 tons in the latest quarter, as purchases climbed 35 percent to 153 tons in India and added 1 percent to 137 tons in China, the report showed. That left the worldwide jewelry total down 3.2 percent at 1,908.1 tons last year.

Total consumer demand in India slipped 12 percent to 864.2 tons last year, partly as jewelers held a strike in March and April to protest taxes on imports and as local prices surged to a record. The government raised taxes on gold imports last month to 6 percent from 4 percent.

While China’s usage fell 0.5 percent to 776.1 tons, the gap of 88.1 tons between the two-biggest markets was the smallest ever, Grubb said. The council said in November that China would probably overtake India as the biggest buyer on an annual basis.

Central Banks

Central banks boosted purchases by 29 percent to 145 tons in the fourth quarter, an eighth successive quarter of net buying, the council said. Nations from Brazil to Russia added 534.6 tons to reserves last year, 17 percent more than in 2011 and the most since 1964, it estimates.

“We think that the current rate of net central bank purchasing, driven by emerging countries, is likely to continue to be very strong,” Grubb said, adding that the council doesn’t have a forecast for 2013 buying yet. “This is very much due to a desire to diversify away from over-reliance from the dollar and the euro.”

Investment, including gold bars, coins and ETPs, dropped 8.3 percent to 424.7 tons in the three months through December from a year earlier, the council said. Full-year investment slid 9.8 percent to 1,534.6 tons. Holdings in ETPs have declined 0.9 percent from the record 2,632.5 tons set Dec. 20, data compiled by Bloomberg show.

Mine output rose 1.9 percent to 735.2 tons in the fourth quarter and increased 0.4 percent to 2,847.7 tons for the full year, the council said. Scrap supply was down 4.7 percent at 407.9 tons in the quarter and 2.6 percent lower at 1,625.6 tons for the whole year, according to the report.

“Gold recycling seems to have plateaued,” Grubb said. “Near-market stocks of recycled gold have been exhausted. The only way you can tempt more recycling out of the hands of existing owners of gold is to raise the price.”

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