Political uncertainty has driven gold demand up by 70%, highest level since 2013
The Brexit vote and the election of Donald Trump drove global demand for gold to a four-year high in 2016, as pension funds and other institutional investors piled into the precious metal while higher prices put consumers off jewellery purchases.
Global gold demand rose 2% last year to reach 4,309 tonnes, the highest level since 2013, according to a report from the World Gold Council, which represents gold miners.
This was largely driven by inflows of 532 tonnes into gold-backed exchange-traded funds (ETFs), which track the spot price of gold – marking the best year for ETFs since 2009.
Gold is seen as a safe haven in times of turmoil, and there was plenty of that last year. Alistair Hewitt, head of market intelligence at the World Gold Council, pointed to the shock Brexit vote and the election of Trump as US president, along with the upcoming Dutch, French and German elections. The weaker yuan and low or negative interest rates also made gold more attractive, helping push up investment demand by 70%.
Hewitt said that “2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold. ETFs are easy ways for people to access gold.”
However, jewellery demand hit a seven-year low of 2,041.6 tonnes in 2016 due to rising gold prices for much of the year, while central bank purchases were the lowest since 2010, due in part to increased pressure on foreign exchange reserves.
Consumers in China and India, the world’s two biggest gold markets, bought less jewellery as the price of gold rose 25% between January and September. Prices then fell between October and December, which meant they were 8% higher over the year as a whole, ending 2016 at $1,145.90 an ounce.
In India, the nationwide jewellers’ strike in effect shut down the gold industry at the beginning of the year, and in November rural communities were hit hard by the cash crunch caused by the withdrawal of high-denomination banknotes. But the effect is likely to to be temporary, the report said – the good monsoon has boosted farmer’s incomes, making it likely they will return to buying gold in coming months (Indians tend to save in gold when they have spare cash).
