Gold prices may have tumbled in 2013, but gold has tried to make a significant recovery at the start of 2014. New data from the World Gold Council show that 2013 was a year in which total demand was down 15%, when you include the effect of exchange traded fund (ETF) outflows. Still, 2013 was a strong year, in terms of physical demand from buyers of gold bars, coins and jewelry, and also from the highly important central bank buyers.
Of the total 3,756.1 gold tonnes bought globally in 2013, some 368.6 tonnes came from central banks. Last year even marked the fourth consecutive one of net central bank demand.
24/7 Wall St. reviewed the top 40 nations and governmental holders of the world’s gold to see who is driving demand. Central banks can be considered the most important buyers of gold of all groups because they generally buy gold to hold against their foreign reserves for years. Because of their size and scale, central banks can simply make the largest single purchases (or sales) of gold, compared to any other single group.
It turned out that just seven of the top 40 nations holding gold added to their central bank holdings. Still, these seven nations accounted for more than 293 tonnes of the 368.6 tonnes purchased from all central banks measured by the World Gold Council.
Consumers in China and India may have led the total world gold demand in 2013, signaling a demand shift from West to East, but the central bank gold holdings of China and India were not shown to have changed at all from 2012. The central bank of Azerbaijan bought 20 tonnes of gold in 2013, but it was not included in this analysis because it was that nation’s first significant purchase, and it ranked all the way down in 62nd place among central bank gold holders.
The World Gold Council said that the pace of central bank gold buying slowed towards the end of 2013, due to the heightened volatility of gold and a slower rate of foreign reserve accumulation. The total central bank demand in 2013 may seem weak with a 32% drop in net tonnes purchased, but you have to keep in mind that 2012 was the strongest year of central bank gold buying in nearly 50 years.
This year has begun very differently from 2013. European risks are far lower than they were a year ago. The five PIIGS — the economically fragile eurozone nations of Portugal, Italy, Ireland, Greece and Spain — and even other European nations did not turn out to be sellers of gold, even with the Central Bank Gold Agreement in place for European central banks to sell gold.
With many emerging market nations experiencing currency shocks at the start of 2014, this sets the stage for potentially more gold demand to act as a stabilizer for the world’s emerging economies.
What really stood out in the World Gold Council annual report for 2013 is the observance of central banks as one category where there “remains little appetite from signatories to reduce their gold holdings any further.” These are the seven nations that make up the world’s largest gold holders and that keep adding gold into their central bank holdings.