Global gold demand rallied in the closing months of 2017, gained 6% year-on-year to 1,095.8 tonnes in Q4. But this increase wasn’t enough to turn the table for total gold demand in 2017. Full year demand fell by 7% to 4,071.7 tonnes. Central banks added 371.4 tonnes to global official gold reserves. This figure is 5% less than 2016’s net purchases. Bar and coin demand fell 2% on a sharp drop in US retail investment. India and China led a 4% recovery in jewelry but still demand remains below average. Use of gold in smartphones and vehicles increased and this caused the first time growth has been seen in technology demand since 2010.
According to World Gold Council’s report, in Turkey, record-high local prices weakened jewelry demand in Q4 and put the brakes on annual growth. The gold price in Turkish lira terms jumped to record highs in late November. This increase discourage consumers from buying jewelry. Meanwhile, the government’s Credit Guarantee Fund had injected the economy with a short-term liquidity boost but the effect vanished in short time. fluctuation in country’s economy was shown as another deterrent. In the uncertain environment, consumers preferred to take one step back to determine what is next.
Turkey recorded 78% growth in annual bar and coin demand, leaping from 29.4 tonnes in 2016 to 52.4 tonnes in 2017. This was its strongest performance in four years. The government’s Credit Guarantee Fund – which guaranteed loans to small and medium-sized enterprises that could not otherwise get credit – boosted the economy and supported supported gold demand. The effect, however, was short-lived. In Q4, demand fell by around two-thirds (both y-o-y and q-o-q) as loans from the Credit Guarantee Fund dried up, and the Turkish lira tumbled, pushing up the local gold price.
Despite falling demand, The most notable purchaser of the year was Turkey. The central bank began buying with gusto: reserves increased by an average of 11t per month from May. By the end of 2017, gold reserves had increased by 86t to over 200t. As we noted in our Q2 report, the decision to make regular purchases of gold was strategic and in line with Turkey’s view that gold is a key reserve asset.
East Asian and Middle Eastern markets drove declines in recycling during 2017. Recycling activity in 2016 – boosted by higher local prices on the back of currency weakness – was particularly high in Indonesia, Turkey and Egypt. This also made subsequent price levels in 2017 appear less attractive to consumers open to selling, contributing to the relative weakness in the y-o-y comparison. Political tensions across the Middle East also spurred consumers to hold onto gold rather than cash in.
