Demand for gold falls into four categories:

  • jewellery;
  • central bank purchases;
  • investment;
  • technology.

In 2017 overall demand decreased to 4,171.7 tonnes or by 7% compared to 4,308.7 in 2016. The fall was 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.

Annual bar and coin demand decreased by 2% 1,029 tonnes from 1,048.7 in 2016, on a sharp drop in US retail investment.

The annual average gold price was of 1,257.2 USD/oz. Four factors supported 2017’s price gains:

  • US dollar weakness;
  • Lofty valuations of many asset markets;
  • Some concerns about geopolitical instability, especially around North Korea;
  • Gold’s positive price performance reassured investors.

In 2017, full-year gold jewellery demand increased by 4% to 2,135.5 tonnes; the first year of growth since 2013

In 2017, central banks demand was 5% lower comparing to 2016: 371.4 tonnes against 389.8. Central banks – notably Russia, Turkey and Kazakhstan – continued to add gold to their reserves, total purchases were lower than they were in the previous year.

Gold demand

Tonnes
2017 2016 YoY Change YoY Change, %
Jewellery2,135.5 2,053.6 81.9 4
Technology 332.8 323.4 9.4 3
Investment1,231.9 1,595.5 -363.6 -23
Central banks/ other institutions 371.4389.8 -18.4 -5
Total gold demand 4,171.7 4,308.7 -137 -7


Jewellery

Jewellery demand recovered, rising 4% from 2016’s seven-year low. Economic expansion and rising household wealth helped jewellery demand grow in China, India and the US – the three largest jewellery markets in the world.

Central banks and other institutions

Central banks bought 371.4 tonnes against 389.8 in 2016, which is 5% lower. The most notable purchaser of the year was Turkey. The central bank began buying with gusto: reserves increased by an average of 11 tonnes per month from May. By the end of 2017, gold reserves had increased by 86t to over 200 tonnes. As we noted in our Q2 report, the decision to make regular purchases of gold was strategic and in line with Turkey’s view that gold is a key reserve asset.

Kazakhstan remained committed to increasing their gold reserves. The central bank bought a net 11.6 tonnes in Q4, taking total net purchases for the year to 42.9 tonnes. This brings Kazakhstan’s gold reserves to just over 300 tonnes, 40% of total reserves, at the end of 2017. Other noteworthy purchasers during the year were: Colombia (4.6 tonnes), Venezuela (4.4 tonnes), Indonesia (2.5 tonnes), Jordan (2.2 tonnes), Kyrgyz Republic (1.8 tonnes), Thailand (1.6 tonnes) and Mongolia (1.3 tonnes).

Notwithstanding Venezuela’s lapsed swap, significant net sales were limited in 2017. Most countries left their gold reserves relatively untouched during the year. Germany was the only significant seller throughout the year, using 4.3 tonnes of gold reserves for its coin-minting programme.

Top-10 reported official gold holdings (as at September 2018)

Tonnes % of reserves
1. United States 8,133.5 73.7%
2. Germany 3,369.9 69.1%
3. IMF 2,814.0
4. Italy 2,451.8 65.8%
5. France 2,436.0 59.3%
6. Russia 1,970.1 17.0%
7. Mainland China 1,842.6 2.3%
8. Switzerland 1,040.0 5.1%
9. Japan 765.2 2.4%
10. Netherlands 612.5 66.3%


Source: World Gold Council



Investment

Investment demand was 23% lower than in 2016. In 2017, total investment demand reached 1,231.9 tonnes.

The pace of growth in the sector slowed sharply in the second half of the year. In some ways, this was not unexpected: the gold price had already gained 14% by end-August, which encouraged a degree of profit-taking rather than fresh buying. Meanwhile, stock markets continued to climb to new highs, and the opportunity cost of investing in gold increased as ultra-loose monetary policy came to an end in some markets - most notably in the US, where the Fed delivered three rate hikes in 2017.

Technology

Gold demand in the technology increased by 3% to 332.8 tonnes in 2017 compared to 323.4 in 2016. Demand for gold in the technology sector saw the first y-o-y increase since 2010. Q4 was a particularly strong quarter, the highest level of demand since Q4 2014.

Demand from the LED sector lagged due to its traditional seasonal dip. The outlook, though, is broadly positive with LED manufacturers planning to increase production capacity of high margin units. Many of these LEDs will be used in the automotive sector, a key growth industry for electronic components. We expect this will be supportive for gold demand. The wireless sector benefited from a surge in demand for 3D sensors; most notably those powering new-generation smartphone features such as 3D video, virtual reality (VR), augmented reality (AR) and iris- and gesture-recognition.

Taiwan and South Korea topped the league table of gold demand in the electronics sector.



  • (1) Unless otherwise indicated, indicators’ source: World Gold Council.


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