Gold investment market is getting physical

A growing investment

Overall global gold demand in 2015 was flat compared to 2014 at 4,212 tonnes, according to the World Gold Council’s latest Gold Demand Trends report. Soft jewellery and technology demand was off-set by strong investment and central bank purchases.

The market last year was also a tale of two halves with demand from central banks and investment demand from retail and institutional buyers in particular accelerating into the final quarter of 2015.

Global investment demand for the full year 2015 grew by 8% to 878t from 815t in 2014.  That was despite another year of heavy ETF outflows (133.4t of net redemptions last year although 2016 is off to strong start) and thanks to an improvement in demand for bars and coins.

Q4 saw investment demand jump by 15% boosted by solid buying in India towards the end of the year and 48t of Chinese coin and bar purchase in the three months which was 25% higher than the previous year.

Worries about a depreciating currency in both countries underpinned sales while in China the surge in gold investment also came on the back of equity market turmoil and a slowing economy.

Annual demand was the strongest ever for the island nation and only the second year of positive investment in a decade

Demand in Europe, the number one region for gold bars and coins, remained resilient improving by 12% to 219.3 tonnes, but Russia, Vietnam and Turkey were the big losers with demand slumping 72% in the latter during the fourth quarter.

The US was the real standout market with annual demand jumping 53% with the US mint running out of 0.1 ounce and 0.25 ounce American Eagle gold coins by October already.

While still a small market, the bullish sentiment towards bars and coins is nowhere more noticeable than Japan.

Investors added 8.9t of bars and coins to their holdings, compared with net profit-taking of 8.2t in Q4 2014. Demand of 16.2t was the strongest year ever for the island nation and only the second year of positive investment in a decade.

Juan Carlos Artigas, ‎Director of Investment Research at the WGC, tells that positive investment demand seen at the end of last year and going into 2016 is not all that surprising given widespread perception of systemic risk and the turmoil on financial markets:

“The change in sentiment [towards gold ETFs] is a reaffirmation of gold’s traditional role as a hedge, an asset for diversification and as a store of value. Look at Japan where last year pension funds began moving into gold as a weak currency and more recently negative interest rates turned into a wake-up call for those seeking to¬†preserve capital.”


Image by Camil Tulcan

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