Why The Latest Report On Gold Demand Trends Matters

[Some thoughts on the World Gold Council's latest report on gold demand around the world.]

Yesterday, the World Gold Council (WGC) released their Gold Demand Trends – Full Year 2012 report, which also contained new data for the fourth quarter.

There are a plethora of accounts about its contents with headlines ranging from “Gold Demand Falls In 2012 For First Time In Three Years” to “2012 Gold Demand Hits Record Value Level” and also “Central Banks Bought Most Gold in Nearly 50 Years” and “India’s Gold Demand Dips By 12% in 2012″.

As I’ve been saying for years, rather than reading the stories that others write about this report, it’s best to just go read the report itself, as it’s jam-packed with information about who’s buying gold and how much.

That’s what I just did, and I came away with these two important takeaways:

1. Central bank buying continues to be a major source of support for this market, and it’s currently understated due to China’s central bank accumulating more gold but not reporting it.
   
2. Despite lower imports in 2012, demand in India remains strong, and it too may currently be understated due to the rise in smuggling that came in response to government import duty hikes.
   

Central Bank Buying

Central bank buying rose 29 percent in the fourth quarter from the same period a year earlier and, for all of 2012, official sector net purchases totaled 535 tonnes, the highest since 1964.

The dramatic change in central bank gold buying can be seen in the lead graphic from the WGC report below and, during a time of waning investor interest (at least in the West), official sector purchases have provided a key support for the gold price.

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