The latest Gold Demand Trends report from the World Gold Council (WGC) does indeed suggest that total ‘consumer’ demand for the precious metal in India last year did exceed that of China after falling behind in the previous year. But the report is careful not to actually state that India’s total gold demand exceeded China’s due to the substantial amount of gold flowing into China’s banks, which falls outside the GFMS calculated ‘consumer demand’ parameters.

At last we have an explanation for the huge disparity between the apparent gold demand figures in the GFMS reports, which the WGC utilises, and the continuing huge levels of Chinese demand suggested by the reported withdrawals from the Shanghai Gold Exchange (SGE).

The WGC explains it thus: “The flow of gold into China has far exceeded the amount needed to meet domestic jewellery and investment demand in recent years. The role of the commercial banks in using this gold for financing purposes has been well documented, including in our report, Understanding China’s gold market, and this activity expanded in 2014. To some extent, this helps explain why Shanghai Gold Exchange delivery figures are significantly higher than consumer demand.”

So there are two demand categories here, one of which is recorded in the WGC and GFMS figures and one which is not. Arguably it is the bigger figure of the two which is most relevant as far as flows of physical gold from West to East are concerned and, as we have pointed out before, the circa 2,100 tonnes withdrawn from the SGE in 2014, suggesting a fall in ‘total’ Chinese demand last year of between 2-3%, is indeed compatible with the fall in ‘consumer’ demand of over 30%. So India may have regained its position as the world’s largest gold ‘consumer’, but remains far behind China in terms of actual gold flows into the two countries.

So there you have it! The media headlines you see saying India has regained top gold demand position are both correct, and hugely incorrect, depending on how the statistics are interpreted.

The above, though, would seem to make the WGC overall global supply/demand balance figures somewhat misleading. The difference between China’s ‘consumer’ demand and its ‘total’ demand was in the order of 1,100 tonnes plus last year and this 1,100 tonnes plus just does not appear in the statistics quoted. That would turn a supposed surplus in global gold supply into a substantial deficit. As we said in a previous article the old quote ‘There are lies, damned lies and statistics’.

Speaking to the WGC’s John Mulligan at the Cape Town Mining Indaba, he told Mineweb that as far as the WGC was concerned the big take-away from the report was the huge turnaround in Indian jewellery demand, particularly in the latter half of the year, which was what made the country top gold ‘consumer’, during the year.  He sees Indian demand as much more volatile, but so saying Chinese Q4 demand was also actually running higher during Q4 than in the record 2014 year too.  The WGC sees Indian demand as more volatile and that from China as providing a relatively steady long term increase alongside the growth in the Chinese middle class which it reckons will grow massively from a current ca 300 million to ca 500 million over the next five years. And Chinese per capita gold holdings are well behind that in other key eastern markets like Singapore, Thailand and Taiwan so are also playing catch up.

Mulligan also pointed out the often overlooked massive increase in European gold demand, particularly in Germany where he reckoned gold buying by individuals had been exceeding that in the USA for the past six years.

But so saying, the WGC’s quarterly demand trends publication does contain a host of presumably perfectly accurate statistics detailing specific aspects of global gold supply and demand. They showed a tail-off of around 10% in jewellery demand over the year to 2,153 tonnes, but noted that this remained comfortably above the 2,053 tonne five year average. The report also showed that jewellery demand was picking up again Q4 – which was the strongest since 2007.

There was also a fall in full year ‘technology’ demand to 389 tonnes – the lowest level since 2003. The WGC comments that sluggish economic conditions in key markets and ongoing substitution away from gold (particularly in the ever diminishing dentistry sector, remain the driving forces behind the 5% drop in 2014.

On the positive side however, investment demand rose 2% year on year and although the big gold ETFs continued to record outflows, these slowed to a fraction of those seen in 2013.

And perhaps most importantly for gold demand in 2014, Central Banks purchased a net 477 tonnes, 17% above 2013’s impressive 409 tonnes. This represents the second highest year of central bank net purchases for 50 years, after the 544 tonnes added to reserves in 2012. Key purchasers were Russia and other Former Soviet Union nations – notably Kazakhstan and Azerbaijan. Between them these three nations accounted for nearly half of all Central Bank demand in the year. Of course whether the Chinese Central Bank is also buying gold remains unknown until such a time that perhaps it deigns to tell us.

Gold supply to the market remained relatively static over the year with a 2% increase in mine supply largely balanced by a fall in gold scrap recycling to a seven-year low. Annual mine production grew for the sixth straight year to a record of 3,114 tonnes, and the combination left full year supply virtually unchanged at 4,278 tonnes. For the current year new mined gold supply is seen as plateauing – perhaps we have reached the predicted ‘peak gold’ situation at last!