Strong H2 uptick in gold demand in 2015 – WGC

 

The World Gold Council’s latest Gold Demand Trends report for full year 2015 is now out, utilising data prepared by London-based precious metals consultancy – Metals Focus.  Unlike the latest supply/demand report from rival consultancy GFMS, the WGC figures put China as firmly the World No. 1 gold consumer at 985 tonnes as compared with India’s 849 tonnes. However, as we have pointed out beforehand, we reckon that both the WGC and GFMS are missing the point in that actual physical gold flows into the Chinese jewellerey and industrial sectors, to which these figures primarily relate, ignore flows into commercial banks, and the overall Chinese total  for inputs of physical gold are far higher at perhaps 2,000 tonnes or more as represented by known gold imports, plus domestic new mined gold production, plus some element of domestic scrap supply.  In terms of gold flows from Western vaults into China this has to be a more relevant figure in assessing  global gold movements.

As with the earlier GFMS report, the WGC figures estimate global new mined gold demand beginning to contract quite sharply in Q4 2014.  This decline is likely to continue as some of the big new project deferments and cancellations start to impact as a part of the enforced capital cost cutting by the major gold mining companies necessary to bring down their debt levels and improve their balance sheets.

The WGC’s release on the latest Gold Demand Trends report follows:

Global gold demand in 2015 was virtually flat compared to 2014 at 4,212 tonnes (t), according to the World Gold Council’s latest Gold Demand Trends report. Despite a challenging start to the year, gold demand rebounded in the second half of 2015 as a result of sustainedbuying from central banks and a strong second half from China and India.

This was particularly evident in the retail investment sector, where bar and coin purchases were led by China and Europe, with strong support from the US, as investors took advantage of weaker prices amid a softening economic backdrop, financial turbulence and ongoing geopolitical tension.

Global investment demand for the full year 2015 grew by 8% to 878t from 815t in 2014. Bar and coin demand remained steady in 2015 as investors took advantage of a weaker price in Q3. The ETF market saw a slowdown in outflows: 133t in 2015, compared to 185t in 2014.  Q4 2015 witnessed a continuation of these trends with a number of key regions experiencing double digit growth.

Overall jewellery demand for the full year 2015 was down 3% to 2,415t from 2,481t in the previous year. Following a slower start to the year, the third and fourth quarters combined produced the strongest second half-year total for gold jewellery in 11 years. Q4 2015, saw steady levels of jewellery demand, at 671t compared to 677t in the same period last year, with retailers reporting an increase in sales around the Indian festival period.

Central Bank demand for the full year 2015 saw a small uptick from 584t in 2014 to 588t in 2015 as the need for further diversification was reinforced by a tumbling oil price and reduced confidence in the global economy. Demand in Q4 continued to be strong, up 25% to 167t from 134t in Q4 2014, making this the 20th consecutive quarter of net purchasing.

Gold demand in Q4 showed further positive signs, following a strong third quarter. In India both the investment (60t) and jewellery (173t) sectors were up 6%, boosted by the festival season. In China, which has witnessed economic turmoil, consumer uncertainty and currency weakness, gold demand held up well, particularly in the investment sector up 25% to 48t for the quarter.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said:In a year that saw global economic and stock market turmoil, the first US interest rate rise in nine years and falling oil prices, demand for gold remained resilient, coming in at 4,212 tonnes for the full year. Official sector purchases, combined with strength in the Asian markets and continuing momentum in the US and Europe, reinforced gold’s credentials as a portfolio diversifier, a wealth preservation tool and a hedge against a range of risks.”

 “Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars and coins  by households across the world, led by India and China. If we just look at the year to date, the investment case for gold is as strong as ever. While stockmarkets have wobbled, gold has performed well.”

Full year 2015 saw China (985t) and India (849t) continue their dominance in the global gold market, accounting for close to 45% of total global gold demand during 2015, with annual consumer demand in both up 2% and 1% respectively.

Total supply for the year experienced a drop of 4% to 4,258t for the Full Year 2015 compared to 4,414t in 2014. This is reflective of both recycling hitting multi-year lows and mine production growth falling to its lowest level since 2008. Mine production contracted in Q4, the first quarterly contraction since 2008, as cost cutting took effect. Q4 2015 reported a more substantial decline of 10% to 1,037t compared to 1,152t in the same period last year as primary production slowed as a result of weaker gold prices, mine closures and project delays.

The FY 2015 Gold Demand Trends report, which includes comprehensive data provided by Metals Focus, can be viewed athttp://www.gold.org/supply-and-demand/gold-demand-trends and on our iOS and Android apps. Gold Demand Trends data can also be explored using our interactive charting tool http://www.gold.org/supply-and-demand/interactive-gold-market-charting.

 

Full year 2015 figures:

  • Overall demand was 4,212t, virtually flat when compared to the 2014 figure of 4,226t
  • Total consumer demand was 3,427t, a 2% decline compared to 3,481t in 2014
  • Global investment demand was 878t a growth of 8% from 815t in 2014
  • Global jewellery demand in 2015 was down 3% to 2,415t from 2,481t in 2014
  • Central bank demand was virtually flat at 588t compared to 584t in 2014
  • Demand in the technology sector was down 5% to 331t from 346t in 2014
  • Total supply was down 4% to 4,258t compared to 4,414t in 2014 with total mine supply down 2% to 3,165t from 3,244t in 2014

 

Q4 2015

  • Overall demand increased 4% to 1,118t compared to 1,071t in Q4 2014
  • Total consumer demand was virtually flat at 935t compared to 938t in Q4 2014
  • Global investment demand grew by 15% to 195t from 169t in Q4 2014
  • Global jewellery demand softened to 671t down just 1% from 677t in Q4 2014
  • Central bank demand grew 25% to 167t compared to 134t in the same period last year
  • Demand in the technology sector fell 7% from 90t in Q4 2014 to 84t in Q4 2015
  • Total supply slipped  to 1,037t in Q4 2015 compared to 1,152t in the same period last year a decline of 10%, with total mine supply also decreasing by 9% to 810t from 893t in Q4 2014
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Gold recycling examined

The World Gold Council and Boston Consulting Group have put together a comprehensive 18 page report on gold recycling, which on average accounts for around one-third of annual global gold supply.

What the report points out in particular is that levels of recycling are very dependent on the gold price – at higher gold price levels as seen in 2010 and 2011, there was considerable effort by gold recyclers to stimulate supply of old gold scrap jewellery and artefacts from the general public, which accounts for around 90% of recycled gold.  This was remarkably successful and led to particularly high recycling levels.  Since 2011 though, the volume of such gold being sourced has fallen quite sharply as the gold price has come back from its highs, and the report suggests that 2015 will see recycled gold supplies fall even further unless there is a sharp turnaround in the gold price.

The other primary source of recycled gold is industrial recycling largely from recycled electronic and electrical equipment, but this tends to be expensive to process given the small amounts used in these items and the fall in the gold price has been eating into margins, perhaps making this less attractive.

Here follows the full media release from the World Gold Council which covers many of the key points in the overall survey and links to download the full document:

“The Ups and Downs of Gold Recycling: Understanding Market Drivers and Industry Challenges,” written and  published today by the World Gold Council and The Boston Consulting Group (BCG), analyses the economic drivers of the global gold recycling market and highlights important future industry trends including; a shift in concentration of gold recycling from west to east, increased difficulty in obtaining gold from electronic products as less is used in modern devices, and potential consolidation within the recycling industry across the entire value chain.

The report shows that between 1995 and 2014, recycled gold1 accounted for, on average, about a third of total supply2. This average belies the dynamic, responsive nature of recycling. An analysis of recycling data from 1982 to 2012 reveals that price fluctuations accounted for around 75 percent of the changes in recycling volumes and that economic shocks can boost recycling by up to 20 percent.

The report examines the challenges and opportunities facing the gold recycling industry, which has two main components; high-value recycled gold3 and industrial recycled gold4. The growing volume in waste electrical and electronic equipment (WEEE) offers opportunities for industrial materials recycling, although obtaining gold from this material will become ever harder as smaller amounts of gold are used in them.

Furthermore, as Asia’s stock of gold keeps growing the ‘centre of gravity’ for gold recycling will likely shift east. India’s and China’s gold jewellery consumption rose from 28 percent of the global total in 2004 to 60 percent in 2014 and as a consequence local competition for gold recycling business could heat up in Asia.

Intensified competition and overcapacity in the near and mid-terms represent the main challenges for both the high-value and industrial gold recycling segments. In addition, falls in precious metal prices have squeezed margins along the recycling value chain, spurring consolidation.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council said:

“The decline in recycling in 2014 was widespread across both developing and industrial countries, although more severe in the latter. Looking forward, we expect recycling to remain low in 2015, and possibly decrease further given that a large portion of near-market supply has been flushed out in recent years. Reduced volumes of distress selling may further suppress recycling volumes and many recycling collectors are struggling to source stock. That said, recycling is the most dynamic element of supply and helps balance the gold market; any price increase in 2015 may elicit an increase in gold recycling volumes.”

 Matthias Tauber, Partner and Managing Director, The Boston Consulting Group, said:

“Industry players in the gold recycling market face a complex blend of challenges and opportunities. Chief among the challenges is overcapacity, particularly in waste electrical and electronic equipment recycling which has nearly doubled over the past 10 years. To succeed, companies must rethink their competitive strategies and operating models – including leveraging economies of scale through M&A and strengthening their operational excellence and reputation among customers.”

In 2014 gold recycling fell to a seven-year low and is expected to remain low in 2015. This is partly a result of gold prices being lower than they were several years ago, leading to less ‘distress selling’ as a result of greater economic stability, and the depletion of near-market gold recycling materials.

Download the full report at: https://www.gold.org/supply-and-demand or www.bcgperspectives.com.

FOOTNOTES:

  1. The World Gold Council defines recycled gold as gold sold for cash by consumers or other supply chain players
  2. Total supply is defined as mine production, recycling, and net producer hedging
  3. High-value gold accounts for roughly 90 percent of the total supply of recycled gold. This comprises recycled jewellery, gold bars and coins
  4. Industrial recycled gold makes up the remaining almost 10 percent and consists primarily of gold found in waste electrical and electronic equipment (WEEE)

Mind blowing stats: China consuming more gold than world producing

Mind-Blowing: China Consumes More Gold Than the World Produces

Frank Holmes’ take on the huge pre-Chinese New Year demand figures as shown by the Shanghai Gold Exchange where withdrawals in the first six weeks of the year have totalled a ‘mind-blowing’ 374 tonnes.

Welcome to the year 4713. Or, if you prefer, the Year of the Ram.

The Chinese New Year, which kicks off today, is the largest and most widespread cultural event in mainland China, bringing with it massive consumer spending and gift-giving. During this week alone, an estimated 3.6 billion people in the China region travel by road, rail and air in the largest annual human migration.

Chinese New Year Spending Double That of U.S. Thanksgiving Spending in 2014Imagine half a dozen Thanksgivings and Christmases all rolled into one mega-holiday, and you might begin to get a sense of just how significant the Chinese New Year festivities and traditions are.

According to the National Retail Federation, China spent approximately $100 billion on retail and restaurants during the Chinese New Year in 2014. That’s double what Americans shelled out during the four-day Thanksgiving and Black Friday spending period.

As I’ve discussed on numerous occasions, one of the most popular gifts to give and receive during this time is gold—a prime example of the Love Trade.

Can’t Keep Gold Down

Most loyal readers of my Frank Talk blog know that China, along with India, leads the world in gold demand. This Chinese New Year is no exception. Official “Year of the Ram” gold coins sold out days ago, and since the beginning of January, withdrawals from the Shanghai Gold Exchange have grown to over 315 tonnes, exceeding the 300 tonnes of newly-mined gold around the globe during the same period. (Editor’s Note: Since Frank penned this article week 6 Chinese demand figures as presented by the Shanghai Gold Exchange surged by another 59 tonnes to total 374 tonnes in the six week runup to the Chinese New Year)

China, in other words, is consuming more gold than the world is producing.

What’s not so well-known—but just as amazing—is that China’s supply of the precious metal per capita is actually low compared to neighboring Asian countries such as Taiwan and Singapore.

The World Gold Council (WGC), in fact, calls China “a huge, relatively untapped reservoir of gold demand.”

This might all change as more and more Chinese citizens move up the socioeconomic ladder. Over the next five years, the country’s middle class is projected to swell from 300 million to 500 million—nearly 200 million more people than the entire population of the United States. This should help boost gold bullion and jewelry sales in China, which fell 33 percent from the previous year.

Chinese and Indian Growth Has Spurred Gold Market
click to enlarge

“I don’t see demand staying down because you have had structural changes,” commented WGC Head of Investment Research Juan Carlos Artigas in an interview with Hard Assets Investor. “One of them, emerging market demand from the likes of India and China, continues to grow, and we expect it to continue to grow as those economies develop further.”

New Visa Policy Promises Increased Chinese Tourism

The Year of the Ram has also ushered in a new visa policy, one that has the potential to draw many more Chinese tourists to American shores.

For years, Chinese citizens could receive only a one-year, multi-entry visa. Now, leisure and business travelers can obtain a visa that allows them to enter multiple times over a 10-year period. The visa application process has also been relaxed.

American companies to benefit from greater influx of Chinese touristsIn terms of overseas spending, Chinese tourists already sit in first place, just above their American counterparts. According to the United Nations World Tourism Organization, a record $129 billion was spent by Chinese travelers in 2013 alone. The average Chinese visitor spends between $6,000 and $7,200 per trip in the U.S.

This visa policy reform is an obvious boon to travel and leisure companies such as those held in our All American Equity Fund (GBTFX)—Walt Disney and Carnival Corp., for examples, not to mention retailers such as Kohl’s, Coach and The Gap.

Other beneficiaries include Chinese airlines such as Air China, which we own in our China Region Fund (USCOX). Global airline stocks are currently soaring as a result of low oil prices, increased seat capacity and more fuel-efficient aircraft. The new visa policy has the potential to give these stocks an even stronger boost.

On a lighter note, at least a couple of airports in North America are making the most of the Chinese New Year, hosting performances by Chinese musical artists and providing entertainment such as a lion dance through the terminal and calligraphy.

To our friends and shareholders here in the U.S. and abroad, I wish you all a Happy Chinese New Year!