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Demand for gold edged lower in 2019 despite record investor buying

posted onJanuary 30, 2020

Demand for gold declined by 1% in 2019, with China and India contributing most to the decline in demand, the World Gold Council (WGC) announced on Thursday (Jan.30), saying global demand stood at 4.4 trillion tonnes. 

The move was led by a drop of 10% in demand in the second half of the year, while buyers were more keen in purchasing the yellow metal in the first six months of 2019. Central bank demand also slowed in the second half – down 38% in contrast with H1’s 65% increase, the WGC added. 

Additionally, the report found that central banks were net buyers for the tenth year in a row.
The final results of the year showed that 15 central banks bought 650.30 tons of gold in 2019. 

Meanwhile, global gold reserves increased to the second highest annual total in 50 years.

Furthermore, the WGC noted that ETF investment inflows bucked the general trend. Investment in these products held up strongly throughout the first nine months of 2019, reaching a crescendo of 256.3t in Q3.

central banks

Highlights of the report

Total fourth quarter demand fell 19% y-o-y to 1,045.2t. Two main contributors to the y-o-y drop were jewellery and physical bar demand, both of which reacted to the elevated gold price. In US dollar value terms, the decline in Q4 demand was much shallower – down just 3% to US$49.7bn.

Inflows into global gold-backed ETFs and similar products pushed total holdings to a record year-end total of 2885.5t. Holdings grew by 401.1t over the year, with 26.8t added in Q4. Inflows were heavily concentrated in Q3 as the US dollar gold price rallied to a six-year high.

Central banks were net buyers for a 10th consecutive year: global reserves grew by 650.3t (-1% y-o-y), the second highest annual total for 50 years. Purchasing in Q4 of 109.6t was 34% lower y-o-y, although this was partly a reflection of the sheer scale of buying in 2018. 

China and India held sway over global consumer demand. Together, the two gold consuming giants accounted for 80% of the y-o-y decline in Q4 jewellery and retail investment demand. High gold prices and a softer economic environment were the main culprits. 

Total annual gold supply edged up 2% to 4,776.1t. An 11% jump in recycling was the main reason for the increase, as consumers capitalised on the sharp rise in the gold price in the second half of the year. Annual mine production was marginally lower at 3,463.7t – the first annual decline for more than 10 years.

The gold price averaged US$1,481/oz in Q4. This was the highest average price since Q1 2013. Although the price remained below the Q3 high, it was well supported. And gold priced in various currencies – including euros, Indian rupees and Turkish lira – hit their highest levels in history. 

Looking ahead to 2020

Higher gold prices dampened interest in gold jewellery and retail bars and coins. This dynamic is likely to continue through 2020, with central banks and nervous investors buying while retail
consumers pull back, the WGC's head of market intelligence, Alistair Hewitt, told Reuters.

The precious metal is commonly referred to as a safe haven, and investors often use it as a safety measure in times of political and economic uncertainty.