Highest Central Bank Buying in 50 Years Drives 4% Growth in Gold Demand in 2018

Global gold demand reached 4,345.1 tonnes (t) in 2018, up 4% as compared to 2017 and in line with five-year average demand of 4,347.5t, according to the World Gold Council’s latest Gold Demand Trends report. The annual increase was driven by a multi-decade high in central bank buying and accelerated investment in bars and coins during the second half of the year. While annual inflows into exchange-traded funds (ETFs) were down 67% in 2018, demand was boosted in the final quarter by inflows of 112.4t.

Central banks added 651.5t to official gold reserves in 2018, up 74% on 2017 and the second highest yearly total on record. Net purchases jumped to their highest level since the end of US dollar convertibility into gold in 1971, as a greater pool of central banks turned to gold as a diversifier. Annual jewellery demand was steady at 2,200t, down just 1t from the previous year. Gains in China (3%), the US (4%) and Russia (9%) broadly offset sharp losses in the Middle East, where demand dropped 15% on 2017. Indian demand was stable at 598t, a drop of only 4t from the previous year.

ETFs and similar products saw only moderate inflows of 68.9t during 2018, down 67% on 2017. Stock market volatility and signs of faltering economic growth in key markets fuelled a recovery in Q4 2018, with inflows growing to 112.4t from 32.5t in the same period last year. However, Europe was the only region to see net growth over the year as a whole. Retail investment in gold bars and coins grew 4% in 2018, to 1,090.2t. Coin demand surged to reach a five-year high of 236.4t, the second-highest on record. Demand for gold bars held steady at 781.6t, the fifth year in succession of holding in a firm 780-800t range.

2018 saw marginal gains in the volume of gold used in technology, up 1% year-on-year, although this was tempered by a Q4 slowdown. After healthy gains during the first three quarters of 2018, a combination of slowing smartphone sales, the US-China trade war and mounting uncertainty over global economic growth contributed to a 5% decline in Q4, to 84.1t.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said,”Gold demand rose in 2018 and, although the US dollar gold price was down 1% over the year, it outperformed many other financial assets. Worries about a slowdown in global growth, heightened geopolitical tensions, and financial market volatility saw central bank demand hit its highest level since Nixon closed the gold window in 1971, the volume of gold in European-listed ETFs reach a record high, and annual coin demand leap 26%.”

He further added,”But some of these factors may prove to be headwinds for some parts of the market. Jewellery and technology demand slowed in Q4 as consumer confidence waned in many markets.I don’t see any of the risks that investors and central banks are worried about fading anytime soon and I expect gold to remain an attractive hedge in 2019.”The total supply of gold grew marginally by 1% in 2018, up from 4,447.2t to 4,490.2t. This growth was supported by similar year-on-year increases in mine production – to a new record high – and recycled gold.

The key findings included in the Gold Demand Trends Full Year 2018 report are as follows:

Full Year 2018 figures:

• Overall demand for FY 2018 was 4,345.1t, an increase of 4% compared with 4,159.9t in 2017
• Total consumer demand in FY 2018 grew 1% to 3,290.1t, from 3,246.1t in 2017
• Total investment demand fell 7% to 1,159.1t in FY 2018 from 1,251.6t in 2017
• Global jewellery demand was largely flat at 2,200t in 2018, a drop of just 1t from 2017
• Central bank demand was 651.5t in 2018, up 74% compared with 374.8t in 2017
• Demand in the technology sector increased by 1% to 334.6t from 332.6t in 2017
• Total supply grew by 1% to 4,490.2t, from 4,447.2t in the same period lastyear
• Recycling grew by 1% to 1,172.6t, compared with 1,156.1t in 2017

Q4 2018 figures:

• Overall demand was 1,281.5t, an increase of 16% compared with 1,108.1t in Q4 2017
• Total consumer demand was flat at 917.2t, up from 912.9t in Q4 2017
• Total investment demand grew 35% to 393.3t in Q4 2018 from 291.7t in Q4 2017
• Global jewellery demand was down 3% to 636.2t in Q4 2018, compared with 653.7t in Q4 2017
• Central bank demand increased 126% to 167.9t from 74.4t in the same period in 2017
• Demand in the technology sector fell by 5% to 84.1t, from 88.3t in Q4 2017
• Total supply was relatively flat at 1,129.4t, compared with 1,123.9t in the same period lastyear
• Recycling grew by 4% to 285.4t, up from 274.4t in Q4 2017