India World’s Top Gold Consumer, Even As Gold Demand Slips

WGC said that the Indian market performed strongly in the final quarter (October-December) with total demand at 261.9 tons, an increase of 41% on the same period last year. Global Gold sales slipped in 2012 for the first time in three years. India importance as the biggest driver of Gold Prices is proven by the fact that even the biggest central bank purchases seen in half a century weren’t able to offset a decline in Gold Demand from India. Central banks, looking to diversify their foreign currency reserves, stepped up their purchases of the precious metal.

Gold Demand by Central-banks in 2012 was the most since 1964. They bought 534.6 metric tons of gold last year, the highest amount in 48 years & up 17% from 456.8 in 2011. Some countries, including Brazil and Paraguay, started buying gold for the first time last year, the report said. This accounted for 12% of total global gold demand last year, up from 10% in 2011. Central banks were previously net sellers for many years before shifting to net buyers in the second quarter of 2009. Since, central banks have added nearly 1,100 tons of gold to reserves, nearly reversing the 1,143 tons of net sales from the previous three years, the WGC said. Russia added 75 tons to its Gold Reserves and now holds more gold reserves than all but six other countries, with its holdings standing at 957.8 as of year-end.

This renewed strength in the fourth quarter helped India maintain its role in 2012 as the world’s largest Gold consumer. Gold Demand in India for the full-year 2012 was 864.2 metric tons, while its closest competitor, China was the second-largest consuming nation at 776.1 tons. The full-year Indian Gold Demand though was down 12% from 986.3 in 2011. Marcus Grubb, Managing Director of investment for the WGC said India’s demand started the year slowly but picked up, whereas Chinese demand began strongly but abated in the third quarter before flattening in the fourth.

The WGC looks for Indian Gold Demand to be in a range of 865 to 965 tons in the year 2013 whereas Chinese demand is projected to be between 780 and 880. China’s full-year demand of 776.1 tons was down marginally from 779.8 tons in 2011. Early in 2012, there were some forecasts that China would take over as the world’s top consumer for the full year, before a slowing in Chinese economic growth in the third quarter left the country’s demand relatively flat for the year, Grubb said. The gap of 88.1 tons between the two-biggest markets was the smallest ever. China’s fourth-quarter demand was 202.5 tons, with 137 coming from jewelry and 66.5 from Gold bars and Gold coins, according to the report. This compares with fourth-quarter 2011 figures of 199.6 tons of total demand, of which 135.6 were jewelry and 64 tons for Gold bars and Gold coins.

Indian Gold Demand recovered in second half of 2012:
Despite widespread speculation that China would overtake India to become the world’s largest consumer of gold in 2012, India’s passion for Gold has helped it retain the top spot. The early weakness in Gold Demand in 2012 was triggered by factors such as higher import duties and a weaker Rupee that made Gold Bullion and Gold Jewelry more expensive for Indians in the dollar denominated commodity. But the last quarter saw renewed Gold buying on worries that Indian import duties on Gold would rise again and the same were proven to be true early this year. Thus fear triggered buying saw India’s Gold Jewelry demand rise to 153 tons from 113.5 in the same period a year earlier. Demand for Gold Bars and Gold Coins rose to 108.9 tons from 72.

The World Gold Council report mentioned that the Indian consumers faced headwinds in the form of higher import duties, market turmoil over proposed measures to curb gold imports and a sharp rise in the local price of gold but Indian Gold Demand staged a strong revival in the second half of the year. The WGC report also said that Indian Gold Demand in the first half of 2012 was 36% lower than the first half of 2011. However, the second-half comparison showed a 23% year-on-year increase.

Outlook on the World Gold Demand:
The global strength in Gold Demand in the fourth quarter was very much driven by a recovery in India, said Marcus Grubb. The two largest jewelry-consuming nations of India and China accounted for 56% of annual global jewelry consumption. The World Gold Council said yesterday that the World Gold Demand from October through December was the second strongest of any quarter on record and 2012 was the second-highest ever for a full year behind 2011. Fourth-quarter gold demand was up 4% on a year-on-year basis to 1,195.9 metric tons, while the value of the gold demand rose 6% to a near-record $66.2 billion, WGC said.

Full-year 2012 global gold demand dipped 4% to 4,405.5 tons from a record 4,582.3 tons in 2011. An increase in demand from institutional investors and central banks only partly offset a year-on-year decline in consumer demand. An 11% rise in world fourth-quarter jewelry demand took the total to 525.3 metric tons, which was the highest of any quarter since the first quarter of 2011, the WGC said. However, for the full year, jewelry demand fell 3% to 1,908.1 tons, mainly due to the weaker Indian Rupee, the WGC report said. Combined global investment demand for gold bars, gold coins and Gold ETP – exchange-traded products in the fourth quarter yet fell 8% year-on-year to 424.7 tons. The year-on-year decline is partly a function of Q4 2011 having been a strong quarter. Net central-bank buying in the fourth quarter was 145 tons, up from 112.8 in the same period of 2011. For the full year, central-bank net purchases were 534.6 tons, the most since 1964 and up from 456.8 in 2011.

The outlook for Gold Demand remains robust. Even with the slump in annual Gold Demand, the WGC said, gold bars and gold coins demand of 336.6 tons was 26% higher than the five-year quarterly average of 268.1, while fresh exchange-traded-product demand of 88.1 tons was in line with its five-year quarterly average of 88.8. WGC added “Although some markets lacked the fresh impetus required to fuel a strong upsurge in demand, a general awareness of gold’s attractiveness in times of uncertainty seems to have sustained both institutional and retail elements of the market at historically elevated levels.” The WGC cited a divergence in investment flows, with a 17% drop during 2012 in demand for gold bars and gold coins but a 51% increase for exchange-traded funds and similar products.

Decline in World Gold Supply:
In its quarterly trends report, the WGC said that the global supply of Gold in 2012 declined by 1.4% to 4,453.3 metric tons which was mainly due to a drop in recycling whereas the global mine output remained nearly flat. Global mine output over the decade for most other major base and precious metals rose to anywhere between 10% to 80%, but its been at 2% for Gold. “It’s hard to see that profile changing at the moment, which means the market will remain very reliant upon recycling in order to meet demand,” said Marcus Grubb. The WGC reported that mine output grew by just 0.4% to 2,847.7 metric tons last year.

Recycling of gold in 2012 contributed 1,625.6 tons to total supply. This was down 2.6% from 2011 despite a 6% rise in the average price of gold itself. “Gold recycling seems to have plateaued. The degree to which consumers become accustomed to higher prices – and indeed adjust their price expectations higher – has an impact on recycling, as does the size of the stock of old gold (often referred to as near-market supplies) that consumers are willing to sell,” the WGC said. “This combination of factors dampened down the supply from existing gold holdings, particularly in industrialized countries where available stocks have been considerably depleted.”