 "Gold demand rose by 2% as investment surge, says WGC")
Global gold demand grew by 2% in 2016, to 4,309 tonne, mainly driven by inflows into gold-backed Exchange Traded Funds (ETFs) in the US and surge towards bars and coins in China during the fourth quarter, according to World Gold Council (WGC).
The total demand in 2015 stood at 4,216 tonne, WGC data revealed.
"Global gold demand rose by 2% in 2016 to 4,309 tonne, the highest level since 2013. This was driven by inflows into gold-backed ETFs of 532 tonne, the second-highest year on record, as investors responded to concerns over future monetary policy, geopolitical uncertainty and negative interest rates," WGC's Gold Demand Trends report has revealed.
"In China, the demand for bars and coins surged in the fourth quarter due to price dip in November and currency weakness also helped to boost overall investment demand by 70%, to a four-year high of 1,561 tonne," WGC Managing Director, India, Somasundaram PR told Press Trust of India here.
The rise in overall investment demand was also aided by continued global economic and political uncertainty, most notably Brexit and the US elections, the report said.
"Last year saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold. Retail investors — having been subdued for most of the year — responded quickly to the price fall in Q4, a fact reflected by a surge in demand in the physical market. With an equally uncertain political and economic environment likely in 2017, we expect investment demand to remain buoyant," WGC Head of Market Intelligence, Alistair Hewitt commented.
While overall investment demand rose sharply, it was counter-balanced by declines in both jewellery, which saw a 15% fall in 2016 to 2,042 tonne, and Central bank purchases, the report cited.
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The Central bank's buying, faced by increased pressure on foreign exchange reserves, declined by 33% to 384 tonne for the year, it said.
Despite this, 2016 was the seventh consecutive year of net purchases by central banks, the report revealed.
Jewellery, in spite of resilient consumer demand in the fourth quarter of 2016, was hit by high gold prices and fell to a seven-year low of 2,041.6 tonne, the WGC report said.
It said that the two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21% and 7%, respectively.
In China, jewellery demand was dampened due to a high gold price throughout the year, coupled with constrained levels of supply in Q4, owing to a tightening of currency controls in the country.
Demand in India also faced challenges throughout 2016, including regulatory changes, the surprise demonetisation decision, which severely hampered demand in both the jewellery and retail investment sectors, the report said.
"The Indian market faces a challenging time in 2017. We anticipate many of the headwinds that affected demand in 2016, to continue into this year, but we are confident that the government's move towards a more transparent gold market will ensure that gold remains an important asset class for millions of people in the country," Hewitt added.
Further, the total supply grew by 5% to reach 4,571 tonne in 2016, compared 4,363 tonne in 2015, it said.
Growth in the sector was supported by net producer hedging, which doubled in 2016, as gold producers saw an opportunity to secure cash flow at higher prices.
The supply was also supported by the significant rise in recycling in Europe and the West Asia, driven by weak currencies and a high gold price.
Mine production remained virtually unchanged from 2015 as a result of industry cost-cutting schemes. However, higher gold prices and lower costs have seen a renewed interest in exploration and increased project development is likely in the years ahead.