Global gold demand rose 2% in 2016 to reach 4 309 t, the highest level since 2013, according to the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ report, which was launched earlier this month.

According to the report, demand was largely driven by inflows into gold-backed exchange-traded funds (ETFs) of 532 t, the second-highest year on record, as investors responded to concerns over future monetary policy, geopolitical uncertainty and negative interest rates.

Continued global economic and political uncertainty, most notably in relation to Brexit, the US election and currency weakness in China, helped to boost overall investment demand by 70% to a four-year high of 1 561 t. The November 2016 price dip led to a strong recovery in the gold bar and coin market in the final quarter of last year, although this did not offset weak demand in the first three quarters, with annual demand reaching 1 029 t, down 2% year-on-year.

WGC market intelligence head Alistair Hewitt commented: “[The year] 2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold”.

He added that, after being subdued for most of the year, retail investors responded quickly to the price fall in the fourth quarter (Q4) – “a fact reflected by a surge in demand in the physical market”.

“With an equally uncertain political and economic environment likely in 2017, we expect investment demand to remain buoyant,” said Hewitt.

While overall investment demand rose sharply, it was counterbalanced by declines in both jewellery – a 15% drop to 2 042 t – and central bank purchases. Central banks faced a challenging backdrop, with increased pressure on foreign exchange reserves resulting in demand falling by 33% to 384 t. Despite this, 2016 was the seventh consecutive year of net purchases by central banks.

In spite of resilient consumer demand in Q4 2016, the two leading gold markets, India and China, both experienced a drop in consumer buying for the year, falling 21% and 7% respectively.

In China, jewellery demand was dampened by a high gold price throughout much of the year, coupled with constrained levels of supply in the final quarter, owing to a tightening of currency controls in the country.

In India, demand also faced a raft of challenges throughout the year, including regulatory changes, culminating in the surprise demonetisation policy, which severely hampered demand in both the jewellery and retail investment sectors.

Hewitt added: “The Indian market faces a challenging time in 2017. We anticipate many of the headwinds that affected demand in 2016 to continue into this year, but we are confident that government’s move towards a more transparent gold market will ensure that gold remains an important asset class for millions of people in India.”

Total supply reached 4 571 t in 2016, a 5% year-on-year increase. Growth in the sector was supported by net producer hedging, which doubled in 2016, as gold producers saw an opportunity to secure cash flow at higher prices.

Supply was also supported by high levels of recycling in Europe and the Middle East, driven by weak currencies and a high gold price.

Mine production remained virtually unchanged from 2015, as a result of industry cost-cutting schemes; however, higher gold prices and lower costs have seen a renewed interest in exploration and increased project development is likely in the years ahead.