Gold Demand Won't Stay Down As Emerging Markets Buy

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February 18, 2015
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WGC's head of Investment Research discusses the latest Gold Demand Trends report.

Juan Carlos Artigas leads Investment Research in the U.S. for the World Gold Council. His responsibilities include managing the global Investment Research team and providing oversight of WGC's research initiatives related to positioning gold as an integral part of investor portfolios. HAI's Sumit Roy caught up with Artigas to discuss the WGC's latest Gold Demand Trends report.

 

HardAssetsInvestor: Gold demand has fallen for three-straight years. Is that a trend that you see continuing?

Juan Carlos Artigas: The key takeaway for 2014 is that the market has come back to stabilization. The year before in 2013 was very unusual. You had strong outflows from ETFs and you had strong purchasing of physical gold in some countries. In 2014, there was a pullback in buying by those countries, but it was still considerably higher than what it was in 2012, 2011, 2010 or before.

I don't see demand staying down because you have had structural changes. One of them, emerging market demand from the likes of India and China, continues to grow, and we expect it to continue to grow as those economies develop further.

Second point: Central banks have turned from net sellers into net buyers. That's also something we see continuing.

Third one: Investment demand. ETFs and other means of accessing gold, bring a new set of investors. Yes, there were some outflows last year in the year before, but there's still a lot of gold held in ETFs, and many of those investors have been holding for a really long time. That signals a strategic approach to gold.

HAI: What were the biggest gold-consuming countries in 2014?

Artigas: If you look at India versus mainland China, India was larger in 2014. That's a reversal from 2013 when China was larger by quite a bit. However, if you compare India to Greater China (Greater China includes China, Hong Kong and Taiwan) – then Greater China was about 20 metric tons higher than India even in 2014.

But regardless of whether India is number one or China is number one, the fact of the matter is that those two countries are not only very important for the gold market, they will remain very important. And there's a lot of growth in those markets.

HAI: Are you seeing an impact on European demand in response to the QE from the ECB and the troubles in Greece?

Artigas: There's been a lot of demand for bars and coins in Europe. There are data from the U.K. Mint that signals strong demand for coins and there's anecdotal evidence that Greeks have accessed the gold market to protect their wealth. Right now, people don't know what the outcome will be, but if Greece were to leave the euro, I'm sure it would put many people in Greece in a tough position in terms of purchasing power. Those who can do so, will try to preserve their wealth as much as possible, and gold is a very natural vehicle to do that.

HAI: One interesting thing that we saw in 2014 was the big divergence in the performance of gold based on the different currencies. In fact, gold rose in price in every currency except the dollar. Does this have some sort of impact on the supply and demand?

Artigas: Your point is an important point. Gold prices in dollar terms were pretty much flat in 2014. But in all other currencies, they went up.

That tells you a couple of things. What it says is gold continues to deliver what it's supposed to do, which is preserve capital. People are buying an asset long-term that they know will help them to withstand some of the pressures and some of the variability that you may get from currency depreciation or inflation. For example, investors in Russia who had gold were able to preserve wealth in a much better way than those who didn't.

It's also a reminder that the gold market is a global market. And even though the price of gold is often quoted in dollars, the fact of the matter is what really is important for each investor and consumer is what their local price is, because that dictates consumer and investor behavior.

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