The latest World Gold Council report is out. It details the gold demand for the fourth quarter of 2012 and gives the total 2012 figures. In this article, we pick out the highlights in the 2012 global gold demand.
Before going into the figures, we should point to an extremely important concept in the gold market: the above the ground available stock of gold vs the new mined gold. Just as a reminder, in this infographic we showed that the above the ground available gold mounts to approximately 165,000 tonnes. Almost all mined gold remains available. Compare that figure with the yearly mined production of approximately 2,500 tonnes (that is, the available gold excluding the non-available production out of China and Russia). It means that yearly demand as described in the World Gold Council report, contains a combination of the “newly available gold” plus above the ground gold that simply change from owner.
The previous idea is critical to understand especially when reviewing gold demand figures. Ronald Stoeferle points to it as the biggest misconception with regard to gold in his In Gold We Trust report (page 23): “The gold sector is riddled with an elementary misunderstanding. Many gold investors and analysts operate on an erroneous assumption: they attach too much importance to annual production and annual demand.” In-depth insights are made available by Robert Blumen who recently wrote this excellent piece of research “misunderstanding gold demand.”
The previous point has been visualized in the World Gold Council 2012 report: a significant amount of the supply comes from recycling, which means that simply the ownership of gold has changed (for instance, from private ownership as jewellery to investment bars).
The global gold demand trends in 2012 are summarized in the report as follows:
Annual gold demand measured on a value basis increased to an all-time record of US$236.4 bn in 2012. On a tonnage basis, demand totalled 4,405.5 tonnes (t) in 2012, down by 4% from 2011 as an increase in demand from institutional investors and central banks only partly offset a year-on-year decline in consumer demand. Major themes from 2012 include a dichotomous year in India, central bank purchases reaching a 48-year high and China’s persistent devotion to gold.
Comparing the high level breakdown per demand type in 2012 with the 5-year average, learns that investors and central banks have increased their gold purchases over the past years. We very much like the fact that a pie chart is used as the available gold can be compared with a pie: if one of the holders wants more, it should come from another holder (except for the 2.5k tonnes newly mined gold per year).
The detailed figures of the previous pie chart are shown in the following two tables. The first one shows the figures for 2012 in tonnes; the second one compares the yearly figures since 2003 both in tonnes and in USD market value.
Common wisdom says that gold investment demand is the main driver for the gold price. The above figures show that it is not entirely correct. Although investment demand has been increasing over the past years, the dollar gold price has been trading in a range since September 2011 while it made new highs in euro early Q4 2012 and yen very recently. It is important to understand the complexities in gold price fixing: although an increase in investment and central bank demand reveals strong fundamentals for gold, it does not necessarily result in a higher price in the short term.
Download the detailed report: Global Gold Demand Trends 2012 from the World Gold Council website.