How Strong is Gold Demand?

While some central banks print money in historic amounts, others are buying gold. According to the WGC, central banks purchased 145 tonnes of gold in the fourth quarter of 2012, the highest quarterly haul since the sector became net buyers in 2009. For the entire year, central bank buying surged 17 percent to 534.6 tonnes, the highest annual total since 1964. In comparison, central banks bought 456.8 tonnes in 2011.

Nations like Russia and China continue to find gold attractive. According to the WGC, Russia added approximately 75 tonnes to its reserve holdings last year by purchasing domestically produced gold. This echoes recently released IMF data that shows Russia added 570.1 metric tons of gold to its stash over the past decade.

Investment demand in gold reached 424.7 tonnes in the fourth quarter, the best quarter of 2012, but 8 percent lower from a year earlier. Annual demand fell 10.8 percent to 1,534.6 tonnes, compared to 1,700.4 tonnes in 2011. Bar and coin demand of 1,255.6 tonnes in 2012 accounted for almost 80 percent of demand in the investment sector. In comparison, that was 31 percent above the 5-year average of 961 tonnes.

Annual demand for gold in the technology sector declined 5.5 percent to 428.2 tonnes in 2012, compared to 452.9 tonnes in the previous year. In dollar terms, demand increased slightly to a new record of $23 billion, compared to $22.9 billion. That is well above the five-year average of $15.5 billion.

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Disclosure: Long EXK, AG, HL, PHYS