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A late rally in physical gold buying failed to prevent a drop in full-year demand last year to its lowest since 2009, the World Gold Council said on Tuesday, as weaker fund investment outstripped a bump in jewellery consumption.
Global gold demand slid 7 percent in 2017 to 4,071.7 tonnes, an eight-year low, the WGC said in it latest quarterly demand trends report.
Investment demand fell by nearly a quarter, driven by reduced inflows into bullion-backed exchange traded funds, the gold mining industry-funded WGC said. While gold prices rose last year on the back of dollar weakness, rising interest rates and a surge in stock markets detracted from the metal's appeal as an investment.
"Certainly the higher equities and rising interest rates will have prompted some investors to think about their allocation to gold (last year)," the WGC's head of market intelligence Alistair Hewitt said. "That said, lots of investors are concerned about frothy asset prices."
With monetary policy still loose in Europe, 73 percent of new gold ETF investment last year flowed into European funds, he said. "In Europe, you still had negative interest rates and negative yields," he said. "You can contrast that with the United States, where you had three rate hikes."
Optimism over global growth, which helped drive the rise in equities last year, also fed into stronger jewellery consumption, he said. Jewellery demand saw its first annual rise since 2013 despite a 13 percent increase in gold prices.
Indian jewellery demand, which saw particular weakness in 2016, rose 12 percent, posting its strongest fourth quarter since the WGC started compiling data in 2000.
In China, jewellery demand rose 3 percent last year, its first annual increase since 2013.
Total Chinese buying stood at 953.3 tonnes last year, while Indian demand reached 726.9 tonnes, the WGC said. It expects to see buying at similar levels this year, with Indian demand seen at 700-800 tonnes, and Chinese offtake at 900-1,000 tonnes.
Central banks also trimmed their overall purchases for a fourth straight year. A drop in demand in the fourth quarter was due entirely to Venezuela's $1.7 billion swap deal with Deutsche Bank elapsing in October, the WGC said.
This represents 45 tonnes of gold, it said, and was accounted for in the fourth-quarter figures as a sale.
Demand from Russia and Kazakhstan stayed buoyant, while the market also saw a rise in demand from Turkey. China, a strong official sector buyer in recent years, was absent from the market in 2017.
This year central bank demand is expected to hold at 300-400 tonnes, little changed from 2017 levels, Hewitt said.