Investment into gold ETPs up 51% in 2012, as gold demand hits all-time high

Feb 15th, 2013 | By | Category: Commodities

Gold demand reached an all-time high of $236.4 billion in 2012, despite a decade-plus long bull market which has lifted the price of the metal more than six-fold. The precious yellow metal looks set to continue its strong performance, as Chinese, Indian and central bank buying show few signs of abating.

Investment into gold ETPs up 51% in 2012

Investment into ETPs backed by gold was up 51% in 2012.

In the final quarter (Q4) of the year, demand was 6% higher year-on-year at $66.2 billion, marking the highest ever total. The average gold price during this period reached a record level of $1,721.8/oz, up 1% on the previous record average price in Q3 2011. The average price during 2012 was $1,669.0/oz, up 6% from $1,571.5/oz in 2011.

While Indian full-year demand was down 12% on the previous year, the market performed strongly in the final quarter with total demand at 261.9 tonnes, an increase of 41% on the same period last year. Both jewellery and investment demand reached their highest levels for six quarters. Demand for jewellery was up 35% year-on-year to reach 153.0 tonnes, and strong retail demand led to 108.9 tonnes of investment buying.

Chinese demand was flat year-on-year, reflecting the impact of economic slowdown. However looking at Q4, total demand was up 1% on the previous quarter to 202.5 tonnes. Jewellery demand was 137.0 tonnes up 1% on Q4 2011 and investment demand was 65.5 tonnes, up 2% on the previous year. These increases may reflect the fact that the economic slowdown in China appears to have been shorter than expected.

Central bank buying for the full year rose by 17% compared to 2011, totalling 534.6 tonnes, the highest level since 1964. Central bank purchases stood at 145.0 tonnes in Q4, up 29% on the corresponding quarter in the previous year, making this the eighth consecutive quarter in which central banks have been net purchasers of gold.

Global investment into exchange-traded products (ETPs), such as the giant NYSE Arca-listed SPDR Gold Shares ETF (GLD) and LSE-listed ETFS Physical Gold ETC (PHAU), was up significantly in 2012, increasing 51% on the preceding year, though Q4 was down 16% to 88.1 tonnes when compared with the high levels recorded in Q3 2012. The SPDR Gold Shares and ETFS Physical Gold are the industry’s largest gold ETPs, with assets of $68.5 billion and $8.3 billion respectively.

Marcus Grubb, Managing Director at the World Gold Council, said: “China and India remain the world’s gold power houses, and by some distance, despite challenging domestic economic conditions. In India, consumer sentiment towards gold remained strong despite measures aimed at curbing demand, reaffirming gold’s role in Indian society. In an underdeveloped financial system in India, gold has an important role to play.”

He added: “Notwithstanding the predicted economic slowdown in China, investment demand was up 24% in Q4 on the previous quarter and jewellery consumption held steady at 137.0t. Central banks’ move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace. The official sector purchases across the world are now at their highest level for almost half a century. Despite the turbulent macroeconomic climate throughout the year, as well as the regional uncertainties affecting India and China, the two largest gold markets, annual demand was 30% higher than the average for the past decade.”

Apart from actually owning physical gold bullion itself, which entails a range of problems such as storage and security, physically-backed ETPs are the most direct route into the metal. ETPs are also by far the most efficient and cost-effective means of acquiring exposure to gold for non-institutional investors.

For UK investors, the following products tend to be the most popular:

iShares Physical Gold ETC (SGLN)
Backed by gold bullion held as allocated gold bars, valued daily at the London PM fix price. The gold is held securely in JP Morgan Chase’s London vaults. Listed on the London Stock Exchange. Total expense ratio (TER) 0.25%.

Source Physical Gold P-ETC (SGLD)
Physically backed by allocated gold bars held in JP Morgan Chase’s London vaults. Listed on the London Stock Exchange, Deutsche Börse (Xetra) and SIX Swiss Exchange. TER 0.29%.

db Physical Gold ETC (XGLD)
Backed by a direct investment in physical gold conforming to the London Bullion Market Association’s (LBMA) rules for Good Delivery stored in secure vaults in London (JP Morgan and Deutsche Bank). Listed on the London Stock Exchange and SIX Swiss Exchange. TER 0.29%.

ETFS Physical Gold ETC (PHAU)
Backed by segregated, allocated physical  gold bullion held by HSBC, the custodian. All physical gold metal held with the custodian conforms to the London Bullion Market Association’s (LBMA) rules for Good Delivery. London listed. TER 0.39%.

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