Despite gold demand rallying in the closing months of 2017, gaining 6% year-on-year in the fourth quarter to reach 1 095.8 t, overall demand for the full year fell by 7% to 4 071.7 t, compared with 2016, according to gold authority the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ report.

“It’s not surprising to see overall gold demand down, given the backdrop of monetary policy tightening and strong equity markets in 2017, but the market is not in bad shape,” WGC market intelligence head Alistair Hewitt commented in a press release issued last month.

He explained that the US dollar gold price was up 13% and institutional investors, particularly in Europe, continued to add gold to their portfolios as a hedge against frothy asset prices and geopolitical uncertainty.

Demand Performance

Inflows into exchange-traded funds (ETFs) continued steadily throughout the year, amounting to 202.8 t, but lagged behind the exceptional levels seen in 2016, according to the report. Similarly, although central banks continued to add to reserves, purchasing 371 t in 2017, buying was down 5% year-on-year.

Full-year bar and coin demand fell 2% as US retail investment dropped sharply. However, the year saw a recovery in jewellery and technology demand, each making modest gains, compared with 2016. This recovery was attributed to improving economic conditions that lifted consumer sentiment in India and China. Hewitt noted that a policy change in India also removed a barrier to gold demand.

Meanwhile, an increase in gold-containing technology, such as next-generation smartphones and tablets, boosted gold demand from technology companies.

Positive yearly ETF inflows added 202.8 t to demand in 2017, however, this was around one- third of 2016’s inflows. European- listed, gold-backed ETFs accounted for 73% of net inflows, with investors keenly attuned to geopolitics and negative interest rates, the report states.

Bar investment was broadly stable, while coin investment slid 10%. Weakness in the sector, which was down 2% to 1 029 t, compared with 2016, was largely explained by a sharp drop in US demand to a ten-year low of 39 t, which exceeded strong gains in both China and Turkey.

While 2017 saw the first yearly increase in jewellery demand since 2013, the sector remains weak in historical context, according to the report, which further states that relatively stable prices and improving economic conditions paved the way for growth, yet demand remains soft compared with long-term average levels.

India and China however, eclipsed other markets, together accounting for 75 t of the 82 t, or 4%, increase in global full-year demand.

Official gold reserves swelled by 371 t in 2017, yet were 5% down on 2016 levels. Turkey and Russia became the most prominent of the central bank buyers.

Meanwhile, the technology sector recovered in 2017, up 3% to 333 t, compared with 2016, ended a six-year downward trend. The volume of gold used in electronics and other industrial applications also grew steadily throughout the year, as a result of the increasing prevalence of new-generation features in smartphones, vehicles and laptops.

Among key highlights were mine production, which inched to a record high of 3 269 t in 2017, while recycling fell 10%, leading to total supply dipping by 4% to 4 398 t. The introduction of stringent environmental controls in China, however, led to a 9% decline in mine production in the region, while the ongoing concentrate exports ban continued to impact on gold output in Tanzania. Total net hedging in 2017 reached 30 t, bringing to an end three consecutive years of modest net hedging, the report stated.