The World Gold Council released its 2012 demand statistics this week.
I’ve pulled out a few interesting highlights and posted some brief observations on the outlook for gold with a review of the chart.
Total Demand was down about 1.3% in 2012. The table below shows total tonnages for the main demand categories
Financial market news and gold commentary talks almost exclusively about what investors might be doing. While this is crucial, especially for short term price swings, I always think it’s important to remember that jewellery plays a big part in gold demand. This is highlighted by the table below.
Sources of Gold Demand 2012
Gold prices are generally quoted in troy ounces. The following might help get your head around statistics quoted in tonnes:
- There are 32.15072 troy ounces in a kilogram
- This means there are 32,150.72 troy ounces in a tonne
- At $US 1,630 per ounce, a tonne of gold is worth $US52.4m
- According to the World Gold Council, total world demand last year was worth $US 236.4 billion
Some of the features of demand last year were:
- While jewellery demand was down for the full year, it was up 13% in the 4th quarter compared to 2011. Stockpiling by Indian buyers ahead of a forecast increased in import duty was a significant factor here. This may lead to a compensating reduction in demand early this year.
- Lower technology demand reflects not just subdued economic growth but an ongoing trend to substituting lower cost alternatives for gold e.g. ceramics in dentistry
- Overall investment demand was partly impacted by profit taking and dealer destocking
- The switch by central banks from being significant net sellers to now being major net buyers has been a major feature of the gold market in recent years. European central banks have stopped selling and Emerging Markets banks have started buying. Last quarter Brazil , Russia and South Korea accounted for almost half of total Central Bank buying
In September last year, gold flicked through the top of the triangle formation that has contained it since late 2011.
Since then it has it has wandered back to, and hung around, the support provided by the 40 week (200 day) moving average.
This average has itself been moving broadly sideways, indicating a fairly directionless market from a big picture point of view
Recent moves below the moving average haven’t had much velocity. However, this week’s candle looks like being a fairly large red one. A weak close today could indicate gold is getting a bit more serious about re-establishing a downtrend, moving well below the 40 week sma. The slow stochastic has popped out of the oversold zone, giving room for to move back into it with some price weakness.
If we do continue to trend down from here, then a test of the triangle support around $1510 could be in prospect. This would fit with a scenario of weaker jewellery demand from India as last quarter’s inventory build up is run down.
My big picture thoughts on the outlook for gold demand are:
- Investment demand is likely to continue at broadly high levels for some time. It will be supported by very low interest rates and the tail risk that politicians/central banks will not achieve an exit from Quantitative Easing policies without debasing major currencies
- Central Banks will continue as significant net buyers of gold for some time. Emerging markets will continue to develop reserves that they need to invest. They will be looking for ways to diversify investments away from US and Euro debt at least at the margin and are likely to capitalise on any price dips
- Jewellery and technology demand will continue to benefit from economic growth, especially in China and other Emerging nations. However, we could see some short term weakness in India.
For investors and big picture traders who see things the same way, a return to the triangle support or bit below may create buying opportunities . This is about 7% below current levels.
As well as representing better value a retreat to these levels gives an opportunity to develop strategies with a logical place to position stop loss levels under support in case there is a major change in outlook