Gold Demand Dropped 15% as ETP Sales Outpaced Purchases

Gold demand fell 15 percent last year as sales from bullion-backed funds and less central bank buying outpaced record consumer purchases that saw China overtake India as the largest user, the World Gold Council said.

Global demand declined to 3,756.1 metric tons in 2013, from 4,415.8 tons a year earlier, the London-based council said today in a report. As investors sold as much through gold-backed exchange-traded products as they bought in the previous three years combined, the steepest price drop since 1981 spurred a 28 percent jump in bar and coin buying and 17 percent increase in jewelry consumption. Chinese usage rose 32 percent to a record.

Bullion slumped 28 percent last year as some investors lost faith in the commodity as a store of value and as the Federal Reserve said it would slow stimulus. Lower prices boosted demand from Asia, resulting in a flow of metal from west to east. Prices rebounded 10 percent this year.

“The consumer stepped in and took up that slack from the ETFs,” Marcus Grubb, managing director of investment strategy at the council, said yesterday by phone from London. “The consumer is still very much going to be on the bid in the gold market in 2014, perceiving that gold is good value at these prices.”

Gold Price

Fourth-quarter demand fell 29 percent from a year earlier to 857.8 tons, the lowest level since 2009, the industry group said. Gold for immediate delivery climbed to $1,326.35 an ounce in London this year, rebounding from the first annual drop since 2000. Prices averaged $1,272 in the fourth quarter, down 26 percent from a year earlier and 4.4 percent lower than the third quarter.

Global jewelry demand rose 5.8 percent to 553.8 tons in the latest quarter, with the full-year total climbing to 2,209.5 tons. Bar and coin buying fell 5.5 percent in the three months through December, narrowing last year’s total to a record 1,654.1 tons.

Total consumer purchases advanced 21 percent to 3,863.5 tons last year, with demand increasing 32 percent to an all-time high of 1,065.8 tons in China and 13 percent to 974.8 tons in India, the report showed. Indian consumption was limited after the government imposed import restrictions to curb a current account deficit. Bar and coin buying also accelerated in Turkey and the U.S. last year, the council said.

ETP Sales

Investors sold 869.1 tons through ETPs last year, data compiled by Bloomberg show. Holdings reached 1,736 tons on Jan. 28, the lowest since October 2009.

Central banks added 61 tons to gold reserves in the fourth quarter, the least since the end of 2010, and full-year purchases declined 32 percent to 368.6 tons, according to the council. Nations added to holdings for 12 consecutive quarters and will continue purchasing amounts in the “hundreds” of tons, Grubb said.

Mine output rose 7.7 percent to 802.7 tons in the fourth quarter and climbed 5.4 percent to 3,018.6 tons for the full year, the council said. Scrap supply was down 12 percent at 339.4 tons in the quarter and 14 percent lower at 1,371.4 tons for the whole year, according to the report.

“The price drop reduced recycling significantly,” Grubb said. “Looking into this year, I don’t see a situation where there’s a lot of recycling ready to come into the market.”

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