Gold market overview

Gold had a robust performance in 2016 and the gold price was up 8% year on year in US dollar terms. In most other currencies the increase was even higher. The gold price closed the year at $1 146 per ounce. Research by the World Gold Council shows that gold demand increased by 2% in 2016, primarily as a result of multi-year record inflows into physically backed gold ETFs.

Investment demand was up 70% year on year, the highest level since 2012, as investors continued to build their strategic allocations in gold via ETFs. Demand for gold backed ETFs and similar products was the second highest on record, just behind 2009. US based ETFs led the increase in demand in the first half of the year, driven by uncertainties about the future path of interest rates and the elections in that country, as well as by the upward price momentum. The balance in ETF demand shifted to European investors in the second half of the year, as they started to focus on the upcoming 2017 elections in that part of the world and the low interest rate environment.

Global bar and coin demand was down 2% year on year. The higher gold price as well as the overall lack of momentum in the price, were the primary causes of this weakness. In the key markets of China and the US, demand showed substantial increases. However, demand in India was negatively impacted by regulatory changes introduced by the government. Demand also fell in Europe, the Middle East and in East Asia. 
The jewellery sector experienced considerable negative pressures in 2016, and demand dropped to a seven year low. The higher gold price profile, regulatory changes in the key Indian market and China’s slowing economy all impacted the market. In India, consumers continue to face a challenging environment and demand has dropped to a multi-year low, on the back of the relatively high and volatile gold price, a fragile sentiment among the rural population and new government regulations. The rural population in India has seen an erosion of disposable income in recent years. In addition, various government regulations have been implemented during the year in an attempt to control and formalise the gold market. Price driven weakness also affected the other Asian markets and in the Middle East. In the US, jewellery demand was relatively flat and poor consumer confidence in Europe resulted in demand following similar patterns. 
Central banks continued to add gold to their reserves and 2016 was the 16th consecutive year of net purchases. 
Gold demand for technological use declined by 3% as pressure from a combination of substitution and slowing final product sales continued to weigh on the sector.
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