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Gold demand popped 4,308.7 tonnes in 2016, up 2% to a three-year high. The primary engine of the growth was exchange-traded funds (ETFs). However, several central banks increased purchases. These included Russia and China.

According to the World Gold Council:

2016 full-year gold demand gained 2% to reach a 3-year high of 4,308.7t. Annual inflows into ETFs reached 531.9t, the second highest on record. Declines in jewellery and central bank purchases offset this growth. Annual bar and coin demand was broadly stable at 1,029.2t, helped by a Q4 surge.

And, gold became more expensive, with a price increase of 8%. However, the price was hit in the latter part of the year:

Having risen 25% by the end of September, gold relinquished some of its gains in Q4 following Trump’s conciliatory acceptance speech and the FOMC’s interest rate rise.

ETF demand neared record highs:

2016 was the second best year for ETFs on record. Global demand for gold-backed ETFs and similar products (ETFs) was 531.9t – the highest since 2009. Q4 saw outflows.

Central bank demand plunged:

Central bank demand was the lowest since 2010. Net purchases (383.6t) were 33% lower than 2015, due in part to increased pressure on FX reserves. Despite this, 2016 was the 7th consecutive year of net purchases by central banks.

The trend among central banks:

Central banks bought 383.6t on a net basis in 2016, 33% lower than 2015. Quarterly net purchases were strongest at the start and end of the year; Q4 saw the largest net addition to reserves with demand of 114.4t (albeit 32% lower than the same period in 2015).

Buying in 2016 was led by Russia, China and Kazakhstan. Together they accounted for around 80% of the full-year figure. Qatar joined the ranks of central banks adding to gold holdings, increasing its reserves by a net 6.8t between January and October. And many, less active, central banks maintain a firm interest in gold, as highlighted in our previous Gold Demand Trends report.

But central bank buying has slowed from the pace of recent years, recording its lowest annual level since 2010. Purchases were 32% down on the annual average of 566.9t recorded between 2011 and 2015. Purchases by China, despite being one of the biggest buyers during the year, slowed to a halt in November and December. And several central banks have reduced their gold holdings: Venezuela (which is suffering a severe economic crisis), Azerbaijan, Argentina and Jordan all reported a drop in reserves.