Image of a gold bar.LISI NIESNER/Reuters
The World Gold Council released its fourth quarter gold demand report on Thursday, and the trends provide a mixed picture: Central banks are still hot-and-bothered by gold, but consumers and investors are taking a somewhat cooler approach – providing an overall lukewarm assessment of an asset now 13 per cent off its high.
Central bank buying comes as many developed economies in Europe, Asia and the United States continue to tinker with monetary policies that are making investors question the value of currencies, particularly the U.S. dollar.
According to the WGC, central bank gold purchases rose 17 per cent in 2012. In the fourth quarter, purchases rose 29 per cent over the fourth quarter of 2011. That marked the eighth consecutive quarter of net purchases by central banks, which sounds like great news for gold investors: Central bank buying as a source of global demand implies that the metal's value as a hard currency is alive and well.
However, investors appear to be shifting their focus. While global investment in gold-focused exchange traded funds rose 17 per cent in 2012 over 2011, it fell 16 per cent in the fourth quarter.
Consumers also look lukewarm, and the WGC placed particular emphasis on what's going on in China and India – markets that the WGC calls "power houses." In China, gold demand in 2012 was flat year-over-year and rose just 1 per cent in the fourth quarter. The WTC attributes this sluggish demand to the impact of the economic slowdown.
In India, where gold is a huge part of the jewelry market, gold demand actually fell 12 per cent year-over-year – though it jumped a perplexing 41 per cent in the fourth quarter.
"In India the prospect of duty increases, which came in to force in January 2013, may have added to strong buying in the final quarter to beat the anticipated price rises," the WGC said in its release.
In any event, the WGC – a market development organization of the gold industry – prefers to look at the broader trend: "Despite the turbulent macroeconomic climate throughout the year, as well as the regional uncertainties affecting India and China, the two largest gold markets, annual demand was 30 per cent higher than the average for the past decade."
The report had little influence on the price of gold: It rose on Thursday morning to $1,650 (U.S.) an ounce, up $4.
David Berman