Central banks and China buyers helping to spur gold demand

Gold bars featuring illustrations of monkeys sit on display in Hong Kong China.
Gold bars featuring illustrations of monkeys sit on display in Hong Kong China. PHOTO: BLOOMBERG

LONDON (REUTERS) - Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said on Thursday (Feb 11).

China remained the world's biggest consumer of gold last year, ahead of India, with economic headwinds influencing purchasing, the WGC said in its annual Gold Demand Trends report. The WGC's members include the world's leading gold mining companies.

Chinese demand for gold coins surged 25 per cent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency. But stock market turmoil and a slowing economy knocked consumer sentiment and Chinese demand for gold for jewellery fell 3 per cent from a year earlier, WGC said.

Jewellery is the biggest source of demand for gold globally and a slight dip in such demand meant overall demand for gold was virtually flat in 2015 at 4,212 tonnes.

Central banks have been buying gold to diversify their reserves away from the US dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013, the report showed.

Central bank buying accelerated sharply in the second half of last year and jumped 25 per cent in the fourth quarter, from a year earlier, as the need to diversify was reinforced by falling oil prices and reduced confidence in the global economy, WGC said.

Mr Alistair Hewitt, WGC's head of market intelligence, was optimistic about the outlook for gold demand given a rally in gold prices since the start of 2016 as investors sought a safe haven from stock market turmoil and warnings of a possible global recession.

Investment demand for gold is improving and flows into exchange-traded funds turned positive this year.

"Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars and coins by households across the world, led by India and China," said Mr Hewitt. "If we just look at the year to date, the investment case for gold is as strong as ever. While stock markets have wobbled, gold has performed well."

Chinese demand for gold totalled 985 tonnes last year, followed by India on 849 tonnes. They accounted for nearly 45 per cent of total global demand, with consumer demand up 2 per cent and 1 per cent respectively in those countries.

Indian jewellery demand reached its third highest level on record in 2015 at 654.3 tonnes.

Global supply of gold fell 4 per cent last year to 4,258 tonnes, partly because of slower mine production. Mining companies have scaled back since 2013 in a bid to slash costs and mine production shrank in the fourth quarter of 2015, the first quarterly contraction since 2008, WGC said.