* Net demand at 4-year low as physically backed funds sold
* 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 Net gold demand fell 15 percent
in 2013 as huge outflows from physically backed investment funds
outweighed record consumer demand but that disinvestment is
tailing off this year, 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, the WGC
said, citing data from Thomson Reuters GFMS.
Expectations of a tapering in the U.S. bond-buying
programme, which had boosted gold by holding down interest rates
while stoking fears of inflation, helped drive prices to their
biggest annual loss in 32 years.
That, in turn, drove demand for gold jewellery, coins and
bars, which rose 21 percent to its highest ever at 3,863.5
tonnes, the WGC said, while overall demand slid to a four-year
low of 3,756 tonnes.
With consumer demand expected to hold firm, gold prices
might recover this year as selling from ETFs tails off, it said.
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
"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," he said.
"The market is getting back to balance. Futures sentiment is
improving too, with the increase in net longs back to nearly 10
million ounces. 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," Grubb said.
"Unprecedented" amounts of gold flowed from Western vaults
to Eastern markets, via refiners in North America, Switzerland
and Dubai, the WGC said.
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.
Signs are that demand may match those levels this year.
"Demand post-new year is remarkably high," Grubb said "We
had a 29-tonne delivery from the Shanghai Gold Exchange last
week in one day, and a consistent premium in Shanghai - we
expect on balance that China will be close to the same level of
demand in 2014 as last year."
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's report said.
Globally, gold jewellery demand rose to a five-year high of
2,209.5 tonnes, the largest volume increase since 1997 and in
India demand for jewellery rose 11 percent to 612.7 tonnes,
while buying in the United States rose for the first time since
2001, to 122.8 tonnes.
Grubb expects the gradual improvement in Western jewellery
demand to continue in 2014 as long as economic recovery keeps
strengthening and lifting consumer's earnings.
Demand for smaller gold investment products such as 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 in 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
about 5 percent to 1,968.5 tonnes, a record high.