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WGC: Global 4Q Gold Demand Dips Slightly But Full-Year Tonnage Highest Since 1997

16 February 2012, 1:00 a.m.
By Kitco News

(Kitco News) - Global gold demand fell slightly in the fourth quarter, yet for full-year 2011 it hit the highest tonnage level since 1997, said the World Gold Council Thursday in its quarterly trends report.

Global demand for gold fell 2% year-on-year in the fourth quarter to 1,017 metric tons. However, demand for the full year rose 0.4% to 4,067.1 metric tons.

Marcus Grubb, managing director for investment at the World Gold Council, said he considered the fractional increase for the full year to be “quite impressive” considering the average price of gold itself rose 28%. Strong investment demand in the fourth quarter offset weaker jewelry and flat technology demand, he said.

“Basically, the reason demand goes up for the whole year in tonnage terms is largely due to investment, not jewelry,” he said. “And it’s largely due to bar and coin investment rather than ETFs (exchange-traded funds) or OTC (over-the-counter) investments.”

In value terms, fourth-quarter demand rose by 21% year-on-year to $55.2 billion, the WGC said. For the full year, the dollar value of gold demand was estimated at $205.5 billion, the first time it has ever exceeded $200 billion and 29% higher than in 2010.

Jewelry Demand Declines With Historically High Prices

Fourth-quarter jewelry demand was 476.5 metric tons, 15% weaker year-on-year. Still, the Gold Council described this as “staunch” in the face of high prices and “difficult economic conditions” in a number of markets, particularly Western nations. The average gold price in the fourth quarter was $1,688.01 an ounce, 24% above year-earlier levels although down from the third quarter.

The fourth-quarter decline was largely the result of a decline in demand in the key consuming nation of India. “That was due to the weakness in the (Indian) rupee, which meant that in the last part of 2011, Indian consumers were sidelined by the fact that gold became very expensive in local currency terms,” Grubb said.

For the full year, global jewelry demand was 1,962.9 tons, 3% below the total from 2010. The value of jewelry demand posted new records for both the quarter and the full year, at $25.9 billion and $99.2 billion, respectively, the WGC said.

The WGC said jewelry demand was strong in the first half due to buying in the two largest markets, China and India, aided by two “opportune” price dips. However, demand fell in the second half as gold hit record prices in the third quarter. In particular, Indian jewelry demand fell 44% year-on-year to 103 tons in the fourth quarter and was down 14% year-on-year to 567.4 tons.

Meanwhile, Chinese fourth-quarter jewelry demand was slightly above year-ago levels at 131.4 tons and was up 13% annually to 510.9 tons.

Investment demand Rises For Fourth Quarter, Full Year

Investment demand grew 19% year-on-year in the fourth quarter, translating to a 5% annual growth rate. Fourth-quarter demand was 428.2 tons and full-year demand hit a record 1,640.7 tons worth $82.9 billion, also a record.

“An almost four-fold year-on-year increase in ETF (exchange-traded-fund) demand was largely responsible for the rise in fourth-quarter investment,” the WGC said. Inflows into gold ETFs were 86.8 tons in the fourth quarter, compared to a “relatively subdued” 22.3 in the year-ago period. However, for the full year, ETF inflows fell to 154 tons from 367.7 in 2010. “However, it should be pointed out that the second quarter of 2010 was exceptional--the second-highest quarter on record at 291.6 tons,” the WGC report said.

Demand for bars and coins totaling 341.3 tons was roughly flat year-on-year. However, for the full year, bar and coin demand rose 24% to 1,486.7 tons, the Gold Council said.

Like jewelry, investment demand in India fell during the fourth quarter, to the tune of 38% year-on-year to 70 metric tons. Chinese investment slipped 3% year-on-year to 59.5 tons. However, bar and coin demand in Turkey jumped 142% year-on-year to 19.3 tons and hit a full-year record high 80.4 tons, the WGC said.

European bar and coin demand was strong, “obviously to some degree stimulated by the euro-zone debt crisis,” said Grubb. In fact, for the full year, the largest bar and coin market in the world was Europe, Grubb said. “That is quite rare.”

Total investment demand in Europe rose posted its seventh consecutive annual gain to 374.8 tons, the Gold Council said. Germany and Switzerland were the main drivers of growth in the region as the eurozone remained in turmoil and the need for asset protection continued to be a priority.

Demand for gold used in the technology sector declined 3% in the fourth quarter to 112.3 tons, the lowest level since the third quarter of 2009. Annual demand was “broadly steady” at 463.5 tons, the WGC said.

Gold demand for electronics was near steady in the fourth quarter—down just 0.4% year-on-year—to 80.9 tons. On an annual basis, this climbed 1.1% to 330.4 tons.

Meanwhile, demand for gold in dental applications fell 10% year-on-year to 10.4 tons, the lowest level on record, and full-year demand fell similarly to 43.8 tons.

India Still Largest Gold Market In 2011; May Soon Be Replaced By China

India was the world’s largest gold market in 2011, although WGC officials said China may surpass the country in 2012.

India’s combined jewelry and investment demand fell by 7% to 933.4 tons last year.
In China, annual demand of 769.8 tons was up 20% year-on-year as a result of increases in both jewelry and investment, the report said.

“A lot of analysts have been speculating how quickly China might exceed India in terms of annual demand,” Grubb said. Previously, the WGC thought this was perhaps five years away. Now, however, “it’s likely that China might eclipse India in 2012 in terms of total gold demand,” Grubb said.

“That’s because we see India remaining relatively flat and we are in the camp that believes China will have a soft economic landing....Therefore, we think for jewelry and investment, you’ll see a roughly 20% growth rate in 2012 in China, and that will potentially put it No. 1.”

Still, Grubb pointed out, India will still be No. 1 in terms of the amount of gold owned by households. This is estimated at some 18,000 tons for India, with China around 9,000.

By Allen Sykora of Kitco News; [e-mail]

http://www.kitco.com/reports/KitcoNews20120216AS_WGC_4Q.html