2014 Gold Demand Remained Well Above Pre-Crisis Levels

The World Gold Council (WGC) has released its Gold Demand Trends report for the full year of 2014. Overall, gold demand was down 4% compared to 2013. The financial media often latches on to just this headline number, adding it to the list of factors it uses to discredit investment in physical gold and silver.

Once again, it’s important to emphasize that gold investment is a long-term strategy. Judging the strength of the physical gold market and investor interest in precious metals by simply comparing year-over-year statistics is a short-sighted game. 2013 saw an all-time record high for physical bar and coin demand, largely because investors rushed to take advantage of a lower price. It’s no wonder that 2014 couldn’t compete, with its relatively stable price of gold in US dollars.

However, compare total bar and coin demand in 2014 to 2004. It’s nearly 300% higher. As the WGC notes, “demand remains well above levels that were the norm in the pre-financial crisis world.”

When you dig into the numbers, you see that speculative investors have a large effect on these demand figures. The short-term players jump in and out of the market on the slightest suggestion of a major trend up or down. In 2013, even though physical bullion demand reached a record high, there was still a net drop in overall gold demand due to ETFs and paper gold speculative dumping their investments as the price fell.

In 2014, paper investors did not sell nearly as much gold. So when combined with physical demand, total investment demand grew 2%. More importantly, so did central bank demand. In total, central banks bought 477.2 metric tons of gold last year. This is 17% higher than their consumption in 2013. It is also the second largest year of net central bank gold buying in the past 50 years.

As the WGC notes, central banks did this to diversify away from the US dollar. Russia led the pack, accounting for more than 36% of this central bank demand.

It’s not just Russia and central banks that is getting more involved in gold. The WGC reminds us that the trend of gold heading from West to East continued last year throughout the industry. In fact, Asia’s share of consumer demand has risen from 47% to 60% in the past five years.

The striking West to East shift in gold demand of the past two years is now being reflected in a similar period of change in global gold market infrastructure. Innovators in Turkey, India, China and South East Asia are developing gold products, services and platforms across the entire supply chain to boost market development. Consumer choice is expanding and the supply chain is becoming more efficient and more transparent.”

2014 was a huge year for the US dollar. It gained a lot of value relative to every major world currency. However, central banks still gobbled up gold at record rates, and the East continued to cut into the market. Investors considering buying more physical gold and silver should pay close attention to this and ignore the buzz of speculative paper investors. The US dollar may look strong relative to the rest of the world, but the powers that be know that it rests on a shaky foundation.

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