Physical gold demand slides to 7-year low in 2016 -GFMS
Here is some data on the gold market that outlines the physical demand for gold throughout last year. If these numbers are correct I find the surplus of in the gold market of 1,176 tonnes (which is the highest this century) to be the most noteworthy stat. Take a look a the report below and please share your thoughts.
…
* Physical gold demand slides 20 pct to 3,349 T in 2016 * Gold market surplus biggest this century * GFMS forecasts gold at $1,259/oz in 2017 By Jan Harvey LONDON, Jan 26 Physical gold demand fell 20 percent last year to its lowest since 2009, GFMS analysts at Thomson Reuters said in a report on Thursday, as a rebound in prices after three straight years of losses blunted appetite for the metal. Buying of jewellery, coins and bars, plus official sector and industrial demand, fell to 3,349 tonnes last year from 4,184 tonnes in 2015, the analysts said, the lowest in seven years. That helped lift the net surplus in the gold market to 1,176 tonnes, up from just 220 tonnes in 2015 and the biggest physical surplus this century. Demand was hurt towards the year-end by gains in the dollar and a sharp drop in Indian demand after Prime Minister Narendra Modi's withdrawal of some denominations of bank notes sparked a cash crunch in the fourth quarter. "The U.S. dollar is likely to remain a substantial headwind to further price rises, at least in the first half of 2017," it said. "Furthermore, there are few indications that physical demand from Asia is set to pick up just yet." Political tensions linked to the new Trump presidency in the United States, the progress of Britain's departure from the European Union, and a host of elections in Europe may spark renewed gold demand later in the year. That led GFMS to forecast gold prices averaging at $1,259 an ounce in 2017. The gold market saw its largest surplus since 2005 in the final quarter of last year, as demand from major consumer India wilted and investors sold out of gold-backed exchange-traded funds. Indian gold demand slid to its lowest since 2003 last year at 580 tonnes, down by one third year-on-year. Jewellery demand in China, the world's biggest consumer of the precious metal, fell 15 percent in the last quarter to 146.6 tonnes. Global jewellery fabrication, the largest single demand segment for the metal, fell by more than one fifth last year, while central bank buying slipped 42 percent to 252 tonnes. Retail investment fell 12 percent to 986 tonnes in the full year, but rose 6 percent in the final quarter. North American retail investment rose by nearly one third in the last three months of the year, with U.S. buying rising 27 percent. "We estimate retail demand will pick up in the beginning of 2017, mainly driven by a revival of physical bar demand," the GFMS report said. "With the inauguration of Mr Trump as president, more uncertainties may emerge on the horizon." Mine supply fell 1.5 percent, but this was offset by a 10 percent rise in recycling and an increase in net hedging supply to 78 tonnes from just 21 tonnes in 2015. GOLD SUPPLY/DEMAND (T)* 2015 2016 Pct change Mine production 3,216 3,168 -1.5 Scrap 1,165 1,280 9.9 Net hedging supply 21 78 271.4 TOTAL SUPPLY 4,404 4,525 2.7 Jewellery fabrication 2,271 1,775 -21.8 Industrial fabrication 362 336 -7.2 Official sector demand 437 252 -42.3 Retail investment 1,115 986 -11.6 Physical demand 4,184 3,349 -20.0 Surplus/deficit 220 1,176 434.5 ETF inventory build -125 523 n/a Exchange inventory build -49 86 n/a Net balance 392 569 45.2 *Source: GFMS Gold Survey 2016 Q4 Update & Outlook (Reporting by Jan Harvey, editing by David Evans)
I’ve looked back at this data in the past and found that the “surplus” GFMS and the WGC talk about is actually a source of demand. It should be called “Institutional Investment” or “Bullion Bank Hoarding” instead. This can be proven because when the surplus goes up, the price tends to go up and vice-versa, which is exactly the opposite of what you would expect if the balance represented “warehouse inventory” or something like that.
Another issue is that “jewelry demand” is not actually demand at all. It’s just the supply of gold dis-hoarded by previous jewelry buyers and current investors.
So this is how the data should look:
2015
Mining output (including net producer hedging): 3,237
Non-monetary demand (jewelry plus industrial minus scrap): 1,468
Monetary demand.
Central banks: 437
Retail Bullion Bars and Coins: 1,115
ETF inflows/outflow: -125
Exchange inventory build: -49
Institutional Investment/Bullion Bank Hoarding (called “balance” by GFMS): 392
Total Monetary Demand: 1,770
Monetary Gold Supply Surplus (mining output minus monetary demand): 1,467 (1 tonne unaccounted for)
2016
Mining output: 3,246
Non-monetary demand: 831
Monetary demand.
Central banks: 252 (185 less than last year)
Retail Bullion Bars and Coins: 986 (129 less than last year)
ETF inflows/outflow: 523 (648 more than last year)
Exchange inventory build: 86 (135 more than last year)
Institutional Investment/Bullion Bank Hoarding: 569 (177 more than last year)
Total Monetary Demand: 2,416 (646 more than last year)
Monetary Gold Supply Surplus: 830 (1 tonne unaccounted for) (638 less of a surplus than last year).
The Monetary Gold Supply Surplus can also be called the Monetary Gold Demand Deficit. They are the same thing.
For more info, read here: http://goldtradingmastery.com/index.php/2017/01/09/gold-an-intro-to-supply-demand-analysis-part-1/
For Doc Postma – Good morning, sir, and thank you for your wisdom and continuing
guidance.
I would certainly appreciate your thoughts about this commentary.
Thank you,
Martin