01/31/2019 | Central banks' gold demand explodes
In the fourth quarter, total gold demand (professional investors, individuals and central banks) reached 1281.5 tonnes, up 16% over the same period in 2017, according to a report released Thursday by the World Board Gold (CMO).
Over the year as a whole, demand rose by 4% to 4,345.1 tons, driven by that of central banks (74% to 651.5 tons).
This level is "the highest since the break-up of the Bretton Woods agreements", which linked the price of currencies to gold reserves of central banks, said the CMO in a statement.
This exceptional demand is explained by the desire to detach the dollar from central banks in Russia, Turkey or Kazakhstan, but also by the interest of banks in Hungary, Poland or Iraq.
On the investor side, in the fourth quarter, "investment themes have changed," commented John Mulligan, one of the leaders of the CMO interviewed by AFP.
The demand for ETFs, the gold-backed index funds that are used by professional investors, rose 246% in the fourth quarter from the previous year, and represents the equivalent of 112.4 tonnes.
At the beginning of the year, investors had instead abandoned the yellow metal and over the year as a whole, the demand for this type of financial products remains negative (-67% to 68.9 tons).
"Investors realize that the world economy is fragile," which pushes them to fall back on gold, a safe haven, commented John Mulligan.
Concern of individuals
Excluding financial markets, retail investors, who buy coins or bullion, have diverged across countries.
"An extreme case of stressed market would be Iran", where the demand for this type of gold has risen by 208% between the fourth quarter of 2017 and the fourth quarter of 2018, to reach 16.2 tons.
In the United Kingdom, Brexit uncertainties increased demand by 36% to 3.2 tonnes in the fourth quarter.
Significant amounts but do not weigh heavily compared to the 70.9 tons bought in China (3%), while uncertainty about the economy shook the world's largest buyer.
Around the world, demand for gold in bars and coins has risen 8% to 280.9 tonnes in the fourth quarter (4% to 1090.2 tonnes for 2018).
Jewelery at half mast
"The other side of this uncertainty is that jewelery is doing badly," said John Mulligan.
Demand from jewelers fell by 3% in China to 174.8 tons, while in India, the world's largest buyer of gold jewelery, it fell 1% to 180.1 tons.
"Economic difficulties, weak currencies and tax changes have affected Turkey and the Middle East," the CMO also notes.
In this region, demand fell by 16% in the fourth quarter to 41.6 tons, including a drop of 32% to 7.6 tons for Turkey.
World demand for jewelery fell 3% to 636.2 tonnes in the fourth quarter, and remains stable at 2200 tonnes for the year as a whole.
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