Global demand for gold hits four-year high as nervous investors stash away their cash

Global gold demand rose 2 per cent in 2016 to 4,309 tons

The two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21 per cent and 7 per cent respectively (Rex )

Global demand for gold rose to its highest level since 2013 last year, spurred mostly by nervous investors looking for a safe place to stash their cash.

According to a report published by the World Gold Council on Friday, gold demand rose 2 per cent in 2016 to 4,309 tons.

“2016 saw an unprecedented degree of political upheaval, which underpinned huge institutional investor flows into gold,” said Alistair Hewitt, head of market intelligence at the World Gold Council.

“With an equally uncertain political and economic environment likely in 2017, we expect investment demand to remain buoyant,” he said.

But although institutional buyers of the precious metal came out in force, demand was not as robust in all areas of the market.

The two leading gold markets, India and China, both experienced a drop in consumer buying in 2016, falling 21 per cent and 7 per cent respectively.

Particularly in China, jewellery demand was dampened as a result of the high price of gold during much of the year. Supply was also constrained as a result of a tightening of currency controls in the country, the council said.

In India, demand was hampered by some regulatory changes, culminating in the surprise demonetisation policy, a decision by the government to scrap high-value bank notes.

Overall, demand for gold in the jewellery sector fell 15% in 2016, to 2,042 tons. Central banks also bought less gold, as a result of increased pressure on foreign exchange reserves, according to the council. Demand in that area fell 33 per cent to 384 tons for the year.

But despite this, 2016 was the seventh consecutive year of net gold purchases by central banks.

In Friday’s report the World Gold Council also said that mine production remained virtually unchanged in 2016 from the previous year, as a result of industry cost-cutting schemes.

Higher gold prices and lower costs, however have seen a renewed interest in exploration. Increased project development is likely in the years ahead, the council said.