Global gold demand plunged by 20% in 2016

BEIJING (Scrap Monster): According to Thomson Reuters’ GFMS Gold Survey Report for Q4 2016, physical gold demand slumped to seven-year lows during the year. This is mainly on account of sharp drop in demand by major Asian consumers-China and India. The demand witnessed huge drop of nearly 20% year-on-year in 2016 to hit the lowest level since 2009. The global jewellery fabrication demand plunged to 28-year lows, hitting the lowest volumes since 1988.

The physical gold demand staged strong recovery during the last quarter of the year, rising significantly by 29% over the previous quarter. The demand was still down by 10% when matched with the same quarter a year before. GFMS notes that even the slump in prices of gold during the quarter failed to lift the Q4 gold demand. As a result, yearly gold demand declined by almost one-fifth during the entire year 2016.

The gains in US dollar towards the end of the year 2016 hurt the gold demand all over the world, GFMS analysts noted. The Indian physical gold demand saw huge decline, post announcement by the Indian government to withdraw currency notes of higher denominations. The purchases were impacted due to sudden cash crunch, as a result of non-availability of liquid cash among customers. As per data, India was pushed to second place by China, which once again regained the title of the largest gold consumer in the world. The Indian jewellery fabrication in 2016 hit the lowest level in 20 years.

The gold demand in China remained weak during the final quarter of 2016. The country’s gold jewellery demand was down nearly 15% during the quarter when matched with the year before. K-gold and gem-set gained more market share during Q4 2016.

In 2016, gold prices registered its first annual gain in four years. It must be noted that the prices had touched six-year lows in 2015. The prices ended 8.6% higher year-on-year despite a sharp fall witnessed during the second half of the year. The average gold price during 2016 stood at $1,247 per Oz, significantly higher when compared with 2015. The gold prices had averaged at $1,160 per Oz during 2015. The rise in gold prices during the entire year 2016 despite sharp drop in physical demand is surprising, noted GFMS analysts.

The global gold surplus totaled just less than 300 tonnes at the end of Q4 2016. The oversupply of gold hit the highest levels since late 2005’s. The large surplus is despite near-record high purchases of physically-backed gold exchange traded funds during the year. The seasonal boost in gold jewellery demand helped to curtail gold surplus. The pickup in official gold buying activity, especially by Russia, too helped to check further rise in global gold surplus.

The GFMS quarterly report predicts tougher time for the yellow metal during 2017. Gold’s price rise would be limited at least during the first half of the current year, mainly on account of rising strength in US dollar. The anticipated hike in interest rate during the course of the current year may further strengthen the dollar. Furthermore, there are still no early indications of pick up in physical gold demand from Asian countries. However, GFMS predicts better gold prospects during the second half of 2017. The gold prices are likely to average at $1,259 per Oz during the entire year 2017, marginally higher when compared with last year.