Were not here to argue whether the WGC has accurately accounted for the totality of gold consumption around the world. Some respected experts, for instance, say the WGC has been underestimating the extent of true demand in China which they say actually could exceed WGC estimates.
But what the latest Gold Demand Trends report does confirm is that gold demand is healthy and rising. Gold demand in the fourth quarter increased 4% year-on-year to a 10-quarter high of 1,117.7t. Full-year demand was virtually unchanged, down just a fraction (-14t) to 4,212t. Weakness in the first half of the year was cancelled out by strength in the second half.
That late-year surge is consumption is attributed to two major drivers: investment demand and central-bank buying.
Investment demand surged 15% in 4Q: Overall investment demand in 2015 grew by 8% versus 2014 totals. Bar and coin consumption rose modestly, while outflows from gold ETFs slowed. Golds momentum clearly started to build in the fourth quarter, which saw investment demand grow by 15% versus the same period in 2014.
Meanwhile, central-bank purchases remain a huge support for gold prices as these entities buy bullion to hedge against the currency wars and devaluations running rampant in Europe, Japan, and elsewhere.
Net purchases by central banks and official institutions surged in the second half of 2015 resulting in the second highest annual demand in our records, the WGC reported.
Central banks net purchases ended the year strongly at 167.2t in Q4, up 25% from 133.9t in the same period of 2014. This brought net purchases for 2015 to an impressive588.4t, 1% higher than 2014s chunky total of 583.9t. The annual total was significantly higher than our initial expected range of 400-500t, and comfortably towards the top end of our revised expectation of 500-600t. This shows that the pivotal change in 2010 from net sellers to net purchases has staying power.
Mine production slipping: Russia and China led the charge in acquiring gold on a bulk scale. And while demand from official sectors remained high, supply is shrinking, falling by 4% in 2015, its lowest level since 2009.
Mine production in 2015 saw its first quarterly decline and its slowest annual growth rate since 2008, the WGC noted. Annual gold recycling dropped again, hitting its lowest level since 2007. With mine production expected to fall in the next year, supply will remain constrained.
Looking back at the final quarter of 2015, one can more readily understand from these supply-and-demand trends why gold has taken off in early 2016. Add to the picture the global decline of stocks into bear territory, Chinas deepening economic slowdown, and plummeting oil prices as both a cause and symptom of the current bleak financial landscape and its logical to project that the WGCs assessment of first-quarter 2016 gold demand will be even more markedly bullish.