This morning the World Gold Council released its Q4 and full year 2015 Gold Demand Trends report, which examines global gold demand with regards to investment, jewelry, and central bank buying. There are some interesting findings in light of the 7-1/2 month rally in the gold price:
- Mining production fell for the first time since 2008
- Central bank buying remained strong – up 25% from Q4 2014. Q4 was the 20th consecutive quarter of net purchasing by central banks.
- The ETF market saw a slowdown in outflows: 133t in 2015, compared to 185t in 2014.
Gold demand resilient in 2015 as central banks and consumers spur strong H2 recovery
Global gold demand in 2015 was virtually flat compared to 2014 at 4,212 tonnes (t), according to the World Gold Council’s latest Gold Demand Trends report. Despite a challenging start to the year, gold demand rebounded in the second half of 2015 as a result of sustained buying from central banks and a strong second half from China and India.
This was particularly evident in the retail investment sector, where bar and coin purchases were led by China and Europe, with strong support from the US, as investors took advantage of weaker prices amid a softening economic backdrop, financial turbulence and ongoing geopolitical tension.
Global investment demand for the full year 2015 grew by 8% to 878t from 815t in 2014. Bar and coin demand remained steady in 2015 as investors took advantage of a weaker price in Q3. The ETF market saw a slowdown in outflows: 133t in 2015, compared to 185t in 2014. Q4 2015 witnessed a continuation of these trends with a number of key regions experiencing double digit growth.
Overall jewellery demand for the full year 2015 was down 3% to 2,415t from 2,481t in the previous year. Following a slower start to the year, the third and fourth quarters combined produced the strongest second half-year total for gold jewellery in 11 years. Q4 2015, saw steady levels of jewellery demand, at 671t compared to 677t in the same period last year, with retailers reporting an increase in sales around the Indian festival period.
Central Bank demand for the full year 2015 saw a small uptick from 584t in 2014 to 588t in 2015 as the need for further diversification was reinforced by a tumbling oil price and reduced confidence in the global economy. Demand in Q4 continued to be strong, up 25% to 167t from 134t in Q4 2014, making this the 20th consecutive quarter of net purchasing.
Gold demand in Q4 showed further positive signs, following a strong third quarter. In India both the investment (60t) and jewellery (173t) sectors were up 6%, boosted by the festival season. In China, which has witnessed economic turmoil, consumer uncertainty and currency weakness, gold demand held up well, particularly in the investment sector up 25% to 48t for the quarter.
Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said: “In a year that saw global economic and stock market turmoil, the first US interest rate rise in nine years and falling oil prices, demand for gold remained resilient, coming in at 4,212 tonnes for the full year. Official sector purchases, combined with strength in the Asian markets and continuing momentum in the US and Europe, reinforced gold’s credentials as a portfolio diversifier, a wealth preservation tool and a hedge against a range of risks.”
“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. If we just look at the year to date, the investment case for gold is as strong as ever. While stockmarkets have wobbled, gold has performed well.”
Full year 2015 saw China (985t) and India (849t) continue their dominance in the global gold market, accounting for close to 45% of total global gold demand during 2015, with annual consumer demand in both up 2% and 1% respectively.
Total supply for the year experienced a drop of 4% to 4,258t for the Full Year 2015 compared to 4,414t in 2014. This is reflective of both recycling hitting multi-year lows and mine production growth falling to its lowest level since 2008. Mine production contracted in Q4, the first quarterly contraction since 2008, as cost cutting took effect. Q4 2015 reported a more substantial decline of 10% to 1,037t compared to 1,152t in the same period last year as primary production slowed as a result of weaker gold prices, mine closures and project delays.
The FY 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed at http://www.gold.org/supply-and-demand/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting tool http://www.gold.org/supply-and-demand/interactive-gold-market-charting.
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Full year 2015 figures:
- Overall demand was 4,212t, virtually flat when compared to the 2014 figure of 4,226t
- Total consumer demand was 3,427t, a 2% decline compared to 3,481t in 2014
- Global investment demand was 878t a growth of 8% from 815t in 2014
- Global jewellery demand in 2015 was down 3% to 2,415t from 2,481t in 2014
- Central bank demand was virtually flat at 588t compared to 584t in 2014
- Demand in the technology sector was down 5% to 331t from 346t in 2014
- Total supply was down 4% to 4,258t compared to 4,414t in 2014 with total mine supply down 2% to 3,165t from 3,244t in 2014
Q4 2015
- Overall demand increased 4% to 1,118t compared to 1,071t in Q4 2014
- Total consumer demand was virtually flat at 935t compared to 938t in Q4 2014
- Global investment demand grew by 15% to 195t from 169t in Q4 2014
- Global jewellery demand softened to 671t down just 1% from 677t in Q4 2014
- Central bank demand grew 25% to 167t compared to 134t in the same period last year
- Demand in the technology sector fell 7% from 90t in Q4 2014 to 84t in Q4 2015
- Total supply slipped to 1,037t in Q4 2015 compared to 1,152t in the same period last year a decline of 10%, with total mine supply also decreasing by 9% to 810t from 893t in Q4 2014
World Gold Council Released Its Q4 And Full Year 2015 Gold Demand Trends
Q4 demand in line with longer-term average
Q4 gold demand grew 4% (+47t) to 1,117.7t. Central bank purchases (+33t) generated much of this growth. Demand was weaker for both jewellery (-6t) and technology (-6t). Mine production (-16t) fell for the first time since 2008 and recycling continued to shrink.
Key themes
- 2015: turbulent demand in H1 gave way to strength in H2. A fractional decline in gold demand to 4,212.2t (-14t) put 2015 on a par with 2010.
- Central banks further strengthened reserves. The official sector was again a source of chunky demand.
- Consumer demand shows resilience. Demand for gold jewellery, bars and coins held up well despite challenges.
Annual demand was almost unchanged at 4212.2t, contracting by a negligible amount (-14t). Q4 demand strengthened to equal its long-term average.
After a challenging first half-year, gold demand steadied and strengthened between July and December. For the last two quarters, demand was bang in line with its five-year average.
The gold market faced a number of obstacles in the first half of the year. This is clear in the data: H1 demand declined by 6% year-on-year, due to a sluggish Q1 followed by a very weak Q2.
There were a number of reasons for the weakness in H1. Extreme adverse weather patterns buffeted Indian demand for jewellery. Economic slowdown combined with financial market turbulence hit demand in China. And global investment was undermined by the largely range-bound gold price and a resurgence in risk appetite, which went hand-in-hand with a more positive outlook for the US economy.
There were other detrimental factors, too: Turkey’s currency plummeted on domestic political upheaval; and the falling oil price and regional conflict damaged demand in the Middle East.
All in all, not favourable conditions for gold demand. But the second half of 2015 was a different story.
At 2,226.6t, H2 2015 was 6% above 2014 and 7% up on 2013. The Western speculative investor-led price drop in July, while resulting in significant outflows from goldbacked ETFs, spurred consumer demand for gold. As we discussed in Gold Demand Trends, Third quarter 2015, there was a rapid response as consumers across the globe – from the US to China – rushed to get their hands on more affordable gold jewellery, bars and coins. And gold demand in Q4, while not matching Q3 strength, was solid nonetheless. Jewellery demand was only marginally softer than Q4 2014, which was itself the strongest fourth quarter for eight years. Although jewellery demand was weaker across most markets, Indian festival purchases cushioned the fall. Bar and coin investment firmed a touch as gold’s wealth protection properties were increasingly desired. And central banks added significant volumes to their reserves.
Demand for gold by central banks intensified in the second half
Risk management – through diversification – continued to fuel official sector demand for gold.
Central banks added to their gold reserves with renewed vigour in the second half of 2015, accelerating their purchasing programmes as diversification of foreign reserves remained a top priority (Chart 1). Central banks bought 336.2t of gold in the second half, versus 252.1t in the first half and 308.8t in the second half of 2014.
Economic and political risks remained stubbornly high: plunging oil prices, conflict in the Middle East, and China’s economic slowdown, to name just a few. Against this background, official sector institutions continued to recognise the need for diversification of their reserve asset portfolios.
Russia tipped the scales with purchases in the region of 200t over the course of the year, of which around 141t were bought between July and December.
Sales by a couple of central banks highlighted the important role that gold can play in times of need. Colombia’s economy, currency and financial markets have been pounded by the sliding oil price, given the country’s dependence on oil exports. The central bank sold just under 7t of gold in the third quarter, around two thirds of its total gold reserves. The funds raised would have helped to ease the crippling pressure on the nation’s finances.
The most significant development of H2 was the announcement that China’s central bank had accumulated over 600t during the preceding six years. While this took some by surprise, the increase was in line with our estimate and was already fully accounted for in our data, which has consistently allocated an amount to Chinese official sector demand. Hence, no revision was required to our historical series.
Consumer demand was surprisingly resilient in Q4
Consumer demand pulled ahead of it’s five-year quarterly average. Heavyweights India and China held firm in the face of challenges.
The resilience of consumer demand in the fourth quarter was somewhat surprising, given inhospitable economic, climatic and socio-political conditions in a large number of markets. Demand for jewellery, bars and coins totalled 934.9t, almost matching the Q4 2014 total (938.3t) and exceeding its 5-year average (913.8t). India and China were the mainstays of the market, despite facing some not insignificant hurdles. But growth also came from some unexpected quarters, including Japan, Vietnam and Iran (Chart 2).
Total Indian demand for jewellery, bars and coins expanded by 6% year-on-year (+14t) to 233.2t in the fourth quarter. Although traditionally one of the strongest quarters for gold demand in India (as the festival and wedding season gets underway) large parts of Southern India had major difficulties to contend with. Chennai was battered by heavy rainfall and flooding, while falling rubber prices and lower investment from the sizable expat population based in the Middle East hit incomes in Kerala. In Telangana, rural incomes weakened after the deficient monsoon curtailed output of rice and cotton.
Growth in festival-related demand overcame this weakness in the south of the country. Late October/ early November gold purchases – inspired by Dhanteras, Diwali and the ensuing wedding season – were given an extra lift as the gold price fell from Rs27,000/10g to around Rs25,500/10g. The sharp demand response quickly pushed the local price from a discount to a premium. However, the premium narrowed towards the end of the year and there are reasons to adopt a cautious outlook as we head into 2016: rural incomes continue to feel the squeeze from rising inflation and weather-related crop damage.
Consumer demand in China eked out gains in the fourth quarter. Demand was up 3% year-on-year at 250.6t. The improvement was driven by demand for investment bars and coins (+25%). Jewellery demand softened marginally (-1%) as relatively lacklustre economic growth gave consumers reason for caution. ‘Golden week’ sales were tame as many used the week’s holiday as an opportunity to travel rather than shop. Nevertheless, demand picked up towards the end of the year and sales for the Singles’ day holiday saw robust growth. Despite negative western headlines, retail sales in China were relatively healthy – up 11% in December, compared with 11.2% in November – with online sales accounting for a growing share.
The weakness of the domestic currency was cited as a main driver of demand for gold bars and coins, with consumers seeking gold’s wealth protection properties. Expectations are for investment products to fare better than jewellery in the weeks and months ahead. Further currency devaluation remains a concern and limits imposed on the purchase of foreign currency highlight gold’s role as a wealth preservation tool.
Although small in absolute terms, demand in Japan extended its recent positive run. Consumer demand expanded for the third consecutive quarter to reach 14.1t. This was just shy of the previous quarter’s 15.2t total, which was a seven-year high. The slide in local prices during the quarter presented an affordable buying opportunity and Yen strength in the closing weeks of the quarter magnified this impact. Investment demand was concentrated among small (100g) bars.
Iran’s market continued to draw strength from the thawing of relations with the West. Optimism over the removal of sanctions drove double-digit gains in both investment and jewellery (30% and 11% respectively). Positive sentiment outweighed the drag from lower oil prices and the 9% VAT levy on gold.
In contrast to the positive global picture for consumer demand, a number of individual markets had a different experience in Q4. Chief among these were Turkey, Russia and the Middle East. The economic and socio-political troubles affecting these countries had a detrimental effect on gold demand and conditions remain shaky as we head into 2016. The global outlook for Q1 is mixed, but – barring any sudden and unexpected negative developments – we would expect year-on-year growth in Q1 given the weak start to 2015.
Market commentary
Jewellery
A steady fourth quarter results in strongest H2 for jewellery demand in 11 years.
Jewellery demand ended 2015 on a relatively firm footing: Q4 was little changed year-on-year at 671.4t (-6t). Combined, the third and fourth quarters produced the strongest second half-year total for gold jewellery in 11 years: H2 demand expanded by 2% to 1,299.9t from 1,271.5t in H2 2014. We have to go back as far as 2004 for a higher H2; demand in the second half of that year was 1,410.7t.
Looking at the full-year data, annual demand declined 66t (-3%) to 2,414.9t from 2,480.8t in 2014. Economic and socio-political factors caused significant declines across a number of markets during the course of the year. Jewellery demand in Turkey, the Middle Eastern markets and Russia all suffered such effects. But there were positive areas, too. India was at the forefront of these.
India’s second-half revival
Jewellery demand in India rebounded in the second half of the year, having suffered in the second quarter. Annual demand reached 654.3t (+5%), its highest level since 2010 and the third highest year on record (Chart 3). November and December were particularly upbeat as Dhanteras (the first day of the 5-day Diwali festival, which heralds the start of the wedding season) was immediately preceded by a drop in the gold price. Price-sensitive consumers therefore took the opportunity to make their purchases at lower levels. For similar reasons, recycling activity shrank by 10% to just 20t: lower prices made the sale of existing gold holdings less appealing. The background to the drivers of Indian gold demand throughout the year, and Q4 in particular, are discussed in greater detail in Key themes.
China slips, but holds footing
Despite global worries over China’s economic wellbeing, the country’s retail sector was relatively healthy in the fourth quarter. Gold jewellery was also resilient in the face of slowing economic growth: Q4 demand was down just 2.8t (-1%) at 202.6t. The annual decline was slightly larger, 3% down year-on-year (783.5t vs 807.2t). Economic slowdown and the stock market turmoil of the first half of the year was the primary driver behind this weakness, through its damaging effect on wider consumer sentiment.
The jewellery industry continues to face headwinds: tightening credit lines at a time of slowing economic growth have intensified competition, putting pressure on margins and encouraging continued consolidation across the sector. Small regional brands, especially those in tier 3 and 4 cities, have suffered most. Larger retailers have fared better, with sales among some of the major brands holding up relatively well, supported by a better product range and deeper pockets. While 24 carat jewellery still dominates the market (accounting for around 85% of demand) higher-margin 18k product continues to grab market share, particularly as new collections are rolled out to capture consumer attention. But inventories are being managed conservatively – with all eyes on the forthcoming Chinese New Year sales – given a lack of confidence that the year ahead will produce any meaningful growth in demand.
Smaller Asian markets give mixed results
The smaller Asian markets were a mixed bag: growth in Japan, Vietnam, Indonesia and South Korea was exceeded by the combined losses in Thailand, Malaysia, Taiwan and Hong Kong. The latter was among the weakest performers of both Q4 and 2015 as a whole. It suffered as a result of its heavy dependence on mainland Chinese tourists. Shrinking numbers of such visitors sparked a collapse in gold jewellery demand, which fell 23% to 13.6t in Q4. Mainland visitor numbers to Hong Kong dropped for a seventh consecutive month in December (-15.5% to 3.5 million) according to data from the Hong Kong Tourism Board. Weak local retail sentiment offered little in the way of comfort.
On the other hand, demand for gold jewellery in Vietnam expanded by 31% year-on-year in Q4 (to 3.9t), yielding a 25% increase in annual demand (to 15.6t). A steep drop in the local price in 2015, combined with lower inflation and stronger economic growth, improved affordability among the gold-consuming population. Seasonal promotional activity (around Vietnam Women’s Day in October and Christmas) also lifted demand. In 2016, the market is expected to build further on the uptrend established since the lows of Q3 2012.
Consumer sentiment further dented in Turkey
Minor losses in global jewellery demand were largely attributable to shrinkage in Turkey, a market that has wrestled with economic, political and regional disruption over the past year. Fourth quarter results were very much along the lines of the year-on-year weakness seen over the preceding three quarters: demand fell 26% (-5.2t) to 15t. The lira remained weak, which kept local gold prices elevated. The fragile domestic economic and political backdrop – and proximity to conflict in Middle Eastern countries – badly affected consumer sentiment in the market. As did the terrorist incidents that spilled onto domestic soil. Little wonder that consumers have preferred to recycle their existing holdings of gold rather than purchase more: Turkey was one of the only markets to register year-on-year growth in recycling in the fourth quarter.
Neighbouring Middle Eastern markets fared little better, with the exception of Iran (as discussed in Key themes). Demand in the region declined 5% to 51.4t in the fourth quarter, giving an annual total of 224.1t, the lowest since 2012. Unsurprisingly, further falls in the price of oil and continued conflict across the region have fed through to declines in gold jewellery consumption. Declining tourist revenues were an added factor in the UAE.
See full report below.
