While 880.8 tonnes of gold flowed out of exchange traded funds in 2013, according to the World Gold Council’s Gold Demand Trends report for the fourth quarter and full year 2013, three quarters of these outflows were absorbed by consumer demand.
This, the WGC says, marks the largest year-on-year increase in consumer demand for the yellow metal since its records began and justifies it calling 2013, the year of the consumer. But, it says, it also reflects a distinct polarisation in sentiment between those institutional funds selling out of ETFs and consumers buying jewellery, bars and coins.
Indeed, it says, “no review of 2013 would be complete without a mention of the unprecedented flow of gold from western vaults to eastern markets, via refiners in North America, Switzerland, and Dubai.”
“These shifts resulted in the shipment and transformation – on an epic scale – of 400oz London Good Delivery (LGD) bars into smaller denominations more suitable for consumers’ pockets.”
According to its numbers, demand for jewellery, small bard and coins, which it refers to as ‘consumer demand’ rose 21% to 3,863.5 tonnes. But, it points out, much of that growth came in the first half of the year, which is unsurprising given the sharp fall in prices in April and June, which the WGC says, “prompted a swift and strong reaction from consumers in the more price sensitive markets such as India and China.”
In the fourth quarter of the year, while there was both continued growth in consumer demand and a further outflow of 180.3 tonnes from gold ETFs, it was at a slower pace than the rest of the year.
Looking at the component parts, jewellery demand recorded its largest annual volume increase since 1997, coming in at 3,293.9 tonnes. And, while much of the growth came in the second quarter, in the final three months of the year, jewellery demand clocked in at 553.8 tonnes, making it the sixth consecutive quarter of year-on-year growth and, the WGC said, 12% higher than the five-year quarterly avergae.
And, while Asian markets made up much of this demand, the council explains, “During the second half of the year, the volume of demand increased by 66.8t (7%) from the same period of 2012 and it is interesting to note that the US and the UK generated a combined 14t of this growth.”
However, given price levels, the US dollar value of this demand was 2% lower than in 2012.
On the investment side of things, while demand for gold bars and coins was at an all time high in 2013, surging to 1,654.1t for the year, annual investment demand fell 50% over the course of the year – owing largely to the ETF outflows.
The third component of investment demand, however, OTC demand, reached levels that “have rarely been seen” during the second half of 2013 – 580.8t.
According to the WGC, the reason for this was primarily due to a build up of stockpiles in Q4 by wholesalers and fabricators in Asia.
“Having been caught short of stock earlier in the year, banks, fabricators, wholesalers and retailers have been building up their stocks in order to avoid a repeat of this scenario.”