Gold demand falls in 2014, but central banks turn big buyers to diversify forex reserves

India regains top spot in gold deman from China; Central banks bought 477 tonnes, second highest in 50 years

The year 2014 saw India regaining the top slot in demand for gold in the world. The previous year had China at first position here.

This was despite a fall in demand in both countries. India’s gold imports, too, despite a sharp rebound in the second half of 2014, were lower than the previous year, according to data from the World Gold Council (WGC), in its trend report for 2014.

In India, total demand from the jewellery segment rose eight per cent to 662.1 tonnes in 2014 from 612.7 tonnes in 2013. Net imports, according to the WGC report, fell from 825 tonnes to 769 tonnes and recycled gold supply fell from 101 tonnes to 77 tonnes. China, which surpassed India in gold demand in 2013 with 1,065 tonnes, had a sharp fall to 813 tonnes. In India, gold demand fell from 974 tonnes to 842 tonnes.

During the year, central banks were big buyers. They purchased 477 tonnes collectively, up 17 per cent over the earlier year, one of the highest amounts bought in the past 50 years. The previous high was in 2012, when central banks purchased 544 tonnes.

This gold buying was to diversify their reserves of foreign exchange, reducing the weight of dollar assets. Russia added 177 tonnes in 2014, the highest among all central bank purchases in the year, taking its total reserve to 1,208 tonnes.

However, investors globally didn’t take a cue from the central banks. Their investment demand in the form of bars and coins was down 40 per cent. Those who’d made major purchases in 2013 held back from more buying. Total investment demand was up by two per cent to 904 tonnes because of a slowing in sales by exchange-traded funds.

Smuggling into India was estimated to have halted in December for a few weeks — the market was quoting the price at a discount to the global price. Since then, it appears to have resumed, with a slight premium. WGC estimated the smuggling in 2014 into India at 175 tonnes. This will continue, it said, till the duty on import is cut.

According to WGC, annual gold demand was 3,924 tonnes, four per cent lower than in 2013. India had its strongest year for jewellery demand since the Council’s records began in 1995, up eight per cent on a year before to 662 tonnes. This was driven by wedding and festival buying, despite the government restrictions on gold imports for most of the year.

The second half of 2014 saw a boom for import and demand in India. From July to December, imports more than doubled from the second half of 2013, to 448 tonnes from the comparative 205 tonnes. During the period, total demand went up to 448 tonnes from the earlier 379 tonnes; jewellery demand was up to 361 tonnes from 264 tonnes.

Says P R Somasundaram, head of WGC India: “The outlook for India is for another year of strong jewellery demand in 2015, on the basis that the government does not impose further market-distorting policies and price volatility does not unsettle the market.”

Total supply in 2014 was virtually unchanged compared to 2013 at 4,278 tonnes, as recycling contracted to a seven year low, offsetting mine production growth, up two per cent to a record 3,114 tonnes.

Marcus Grubb, managing director, investment strategy, at WGC, said: “2014 was a year of stabilisation and innovation in the gold market. It was a standout year for Indian jewellery.”

Adding: “Particularly notable was the striking shift in physical gold demand from west to east, followed by gold infrastructure development in Asia. New products and trading platforms were introduced like the Shanghai Gold Exchange International Board, the ‘Gold Send’ mobile app in Turkey and the new kilobar contracts in Singapore and Hong Kong — all designed to make gold more accessible to a greater numbers of buyers in the east.”