Gold Prices Slump But Demand Hits 17 Year Peak

Gold prices may have slumped in the past year, but demand for the precious metal is still running high.

The spot price for an ounce of gold is £1,075 – down £247 an ounce in the past year from a peak of £1,322 an ounce.

But the latest supply figures from trade body the World Gold Council show:

  • Demand for gold jewellery has surged 17% in a year to more than 2,200 tonnes, which is the highest increase for 17 years and a general reaction to lower prices
  • Investors bought up 1,654 tonnes of gold bars and coins as prices fell back allowing them to buy low and holding in anticipation of future increasing values, however western funds sold 880 tonnes to take a more tactical position against the risk of prices continuing to fall
  • Technology companies kept their demand stable for the year at 404 tonnes
  • Central banks bought more gold to strengthen reserves by 386 tonnes during 2013 – the fourth year in a row net purchases exceeded sales, but the rate of purchasing gold is slowing down
  • The total supply of gold dropped by a nominal 2% to 4,339 tonnes in 2013, mainly due to an increase in recycling rather than falling output from mines.

Gold market shifts focus

The World Gold Council explained one of the main factors of the year was an ‘unprecedented’ flow of gold from vaults in the west to those in the east.

“Refiners in Canada, the US, Switzerland and Dubai shifted their focus from west to east,” said a spokesman.

“This was mainly the sale of gold by funds in the west reducing their position and feeding a voracious appetite among consumers in India, China, the Middle East and other eastern markets. This shift saw a huge move of 400 ounces of London Good Delivery gold bars into smaller denominations for consumers to buy.”

Demand high in India and China

The highest demand was from China, which saw a record inflow of more than 1,000 tonnes of the precious metal into the country.

This run  on gold in China sparked fears of a gold rush as prices fell during the year and stock piles diminished, but has slowed in recent months to allow the market to stabilise, said the World Gold Council.

Meanwhile, the Indian government tried to slow the purchase of gold by consumers by putting an import tax in place.

However, 2013 saw 974 tonnes of gold go to the country – the third highest annual amount on record.

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