Why The Latest Report On Gold Demand Trends Matters, Seeking Alpha

February 14, 2013

Earlier today, the World Gold Council (WGC) released their Gold Demand Trends — Full Year 2012 report, which also contained new data for the fourth quarter.

There are a plethora of accounts about its contents with headlines ranging from Gold Demand Falls In 2012 For First Time In Three Years to 2012 Gold Demand Hits Record Value Level and also Central Banks Bought Most Gold in Nearly 50 Years and India’s Gold Demand Dips By 12% in 2012.

As I’ve been saying for years, rather than reading the stories that others write about this report, it’s best to just go read the report itself, as it’s jam-packed with information about who’s buying gold and how much.

That’s what I just did, and I came away with these two important takeaways:

1. Central bank buying continues to be a major source of support for this market, and it’s currently understated due to China’s central bank accumulating more gold but not reporting it.
2. Despite lower imports in 2012, demand in India remains strong, and it too may currently be understated due to the rise in smuggling that came in response to government import duty hikes.

Central Bank Buying

Central bank buying rose 29 percent in the fourth quarter from the same period a year earlier and, for all of 2012, official sector net purchases totaled 535 tonnes, the highest since 1964.

The dramatic change in central bank gold buying can be seen in the lead graphic from the WGC report below and, during a time of waning investor interest (at least in the West), official sector purchases have provided a key support for the gold price.

Since becoming net gold purchasers in 2009, central banks have added over 1,000 tonnes to their reserves, nearly reversing the net gold sales of the prior three years under the European Central Bank Gold Agreement.

As Western central banks’ gold sales have ground to a halt, as shown in this item earlier today, emerging market central bank purchases have accelerated. More than anything else, this is an acknowledgement that gold has an increasingly important role to play in the current monetary system that is dominated by paper money from the West.

Many nations are in the process of selling currencies such as the U.S. dollar and the euro while adding gold reserves, and no one knows how much gold China’s central bank is buying because they’re not telling anybody.

Including China, central bank gold purchases in 2012 could have been 800 tonnes, 1,000 tonnes, or more, and when China finally tells the world just how much gold they’ve been buying — as they did in 2009 when they announced a doubling of their reserves — the gold price will certainly move much higher.

Gold Buying In India

Gold demand in India, still the world’s number one gold buyer, was thwarted by two factors in 2012 — higher gold import duties and a weakening currency (the rupee), both of which made gold more expensive.

Inserita il: 01/01/1970