JOHANNESBURG (miningweekly.com) – Global gold demand rose 2% in 2016 to reach 4 309 t, the highest level in four years, according to the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ report, which was launched earlier this week.

According to the report, demand was largely driven by inflows into gold-backed exchange-traded funds (ETFs) of 532 t, the second-highest year on record, as investors responded to concerns over future monetary policy, geopolitical uncertainty and negative interest rates.

“It was an interesting year driven by a particularly strong set of trends and drivers for the first three quarters,” WGC director and investor relations manager John Mulligan told Mining Weekly Online in a telephone interview.

He pointed out that demand for gold in 2016 ended 2% higher than in 2015 at 4 308.7 t, “but this was very much an investment demand story and, certainly in the first three quarters, it was an investment demand story from the institutional and professional investor”.

In the third quarter, Mulligan pointed out, investment in gold ETFs had produced record highs, 70% up from the year before and resulting in about 532 t of the overall gold demand for last year. “That was very significant, as it drove a very strong investment story.”

However, the focus on institutional and professional investment slowed in the fourth quarter, which Mulligan suggested was owing to the election of US President Donald Trump.

“Investors pretty much across the board were aware of the risks, uncertainties and vulnerabilities in the global economy and geopolitics, but particularly against capital market sentiment, which swung very radically following the US election, resulting in an immediate change in market sentiment.”

He pointed out that while the price of gold improved overall in 2016 there was a drop in the price subsequent to the change in market sentiment, resulting in a 26% increase in the gold bar and coins market in the fourth quarter of 2016 compared with the fourth quarter of 2015.

Overall, the bar and coins demand grew 2% in 2016 at 367 t, bolstered by an 86% fourth-quarter increase in Chinese demand compared with the corresponding period in 2015. In the US bar and coin demand also increased by 80% to 30 t in the fourth quarter, while German demand remained relatively flat but still strong at 35 t.

“Elsewhere, we saw overall weak markets and I think the uncertainties and vulnerabilities that drive investors to gold often create headwinds for consumers in, for instance, the jewellery market, which dropped 15% globally at 2 041 t,” Mulligan said.

He noted that India and China account for about 80% of overall gold jewellery demand and that demand from the Asian nations dropped 22% and 17% respectively.

Meanwhile, mine production remained relatively flat in 2016 at 3 236 t; however, gold supply did rise slightly by 5% largely off the back of a 17% increase in recycled gold.

“The increase in recycled gold is often a function of local price,” Mulligan noted, explaining that countries with weak currencies and a high local gold price generally turn to recycled gold to supply local markets.

He noted that while the WGC expects gold production to remain relatively flat in the near future, “the project pipeline [for gold miners is] looking a lot healthier”.

“The project pipeline seems to have bounced back. Exploration is also starting to pick up and there is a lot more talk from the major miners [about] being able to commit to exploration - mostly brownfield exploration but there is also talk of greenfield exploration, which suggests that the sector is fairly optimistic for 2017,” Mulligan said.

He explained that equity prices and mining indices “are still doing remarkably well” and that “there is a new buoyancy and optimism in the mining sector”.

“Conditions are healthy, there is some free cash flow and a stronger picture. That being said we do not expect that to translate into production anytime soon and we still expect production to remain flat for some time,” Mulligan concluded.