* Gold demand hit 4-year low as investors sold holdings
* Heavy liquidation of gold funds easing off in Q1
* Jewellery demand rose by most since 1997 last year
* Heavy restocking seen in China, some gold scrap seen
By Jan Harvey
LONDON, Feb 18 Gold demand fell 15 percent in
2013 as huge outflows from physically backed investment funds
outweighed record consumer demand, but that heavy disinvestment
is tailing off this year, pointing to a recovery, the World Gold
Council said on Tuesday.
Massive liquidation of bullion-backed exchange-traded funds
returned 881 tonnes of gold to the market last year, part of a
51 percent slump in investment demand to 773.3 tonnes.
That helped drive gold prices to their biggest annual loss
in 32 years, which in turn pushed up consumer buying of the
metal. Demand for gold jewellery, coins and bars rose 21 percent
to its highest on record, at 3,863.5 tonnes, the WGC said.
With that side of the market expected to hold firm, gold
prices could recover this year as selling from ETFs tails off,
it added. Already this year, the largest gold ETF, New York's
SPDR Gold Trust, has reported a small inflow.
"You're seeing a significant change in the behaviour of
those ETFs," the WGC's managing director for investment, Marcus
Grubb, said. "Notwithstanding that the year is yet young, you
are certainly going to see a much better year for investment and
ETFs than you did last year."
"The market is getting back to balance. Futures sentiment is
improving too, with the increase in net longs back to nearly 10
million ounces," he said. "Overall, it leads us to think this
will be a better year for gold than last year ... we expect to
see a positive return this year."
Overall demand slid to a four-year low last year, at 3,756
tonnes, the WGC said. There was an "unprecedented" flow of gold
from Western vaults to Eastern markets, via refiners in North
America, Switzerland and Dubai, it added.
China overtook India as the world's biggest gold consumer,
with overall demand of 1,065.8 tonnes, largely driven by a 29
percent rise in Chinese jewellery demand and a 38 percent
increase in coin and bar buying.
"We would expect to see Chinese demand to remain very strong
at similar levels (to last year), but it's unlikely to exceed
the levels reached last year," Grubb said.
He said the difference between the amount of gold going into
China and measured demand suggested that a lot of metal remained
in the inventory chain, ready to meet demand.
JEWELLERY DEMAND HITS HIGH
China bucked the trend in developing markets for lower scrap
supply - which fell 14 percent globally to 1,371.4 tonnes, its
lowest since 2008 - to show an increase in recycled gold
returning to the market.
"The surge in demand (in China) seen in 2013, with consumers
making opportunistic purchases at lower prices, does increase
the prospect of a resurgence in recycling should prices rebound
with any conviction," the WGC said in the report.
Global gold jewellery demand rose to a five-year high of
2,209.5 tonnes, the largest volume increase since 1997, the WGC
said. Indian jewellery demand also rose 11 percent to 612.7
tonnes, while buying in the United States rose for the first
time since 2001, to 122.8 tonnes.
Demand for smaller gold investment products like coins and
bars also rose 38 percent in China and 16 percent in India last
year, with buying also rising sharply in Thailand, South Korea,
and the Middle East, particularly Egypt. Turkish coin and bar
demand more than doubled to 102 tonnes.
Central bank buying fell to its lowest in three years, down
by nearly a third to 368.6 tonnes. This was driven in part by
the last year's price volatility, Grubb said.
"Effectively one of the reasons the slowdown happened was
the increased volatility of the gold price, which is certainly
looking better this year so far," he said. "That did affect
these longer term programmes last year."
"Overall we still think you'll see a strong year for central
banks (in 2014), probably similar to last year."
On the supply side of the market, mine supply rose again by
around 5 percent to 1,968.5 tonnes, a record high.