Overall demand for gold turned out to be broadly flat y-o-y in FY 2015, at 4,212 tonnes, decreasing by a mere 14 tonnes, with growth in net investment and central bank demand offset by declines in jewellery and technology. Jewellery, with a 57% share in total demand, remained the single-largest consumer group, although its contribution was down 2 ppts y-o-y from 59% in FY 2014, following a 3% drop in demand. This decrease was on account of economic turbulence in Turkey, the Middle East, and Russia, although this was to some extent offset by positive developments in India. Investment demand was up 8% y-o-y, with a pick-up in bar and coin purchases supported by lower outflows from exchange-traded funds. Central banks continued to diversify reserves into gold, providing a 1% y-o-y growth in demand, with Russia and China topping the list of the largest buyers. Purchases from the technology sector, in contrast, demonstrated a fifth consecutive year of decline (down 5% y-o-y in FY 2015), primarily on account of substitutions and savings in the wireless industry and dentistry.
Global gold demand breakdown in 2015
Source: World Gold Council
In FY 2014 a continued increase in mine production helped offset further losses from recycling; however, this was not the case in FY 2015. As widely anticipated, mine production in FY 2015 reached its peak by adding only 1% y-o-y, while the supply of gold from scrap continued its downward trend from FY 2009, contracting by 7% y-o-y. Of particular note, mine output in Q4 2015 amounted to 810 tonnes of gold produced (a decline of 3% q-o-q and 9% y-o-y), which marked the first quarterly decline since Q4 2008 and the first y-o-y drop in Q4 in over seven years. The overall gold supply thus contracted by 4% y-o-y to 4,258 tonnes, the lowest level since FY 2009. Further production cuts are expected in FY 2016 owing to optimisation measures, mine closures, and lower grades.
Global gold production, t
Expectations of higher US interest rates in FY 2016 had a major negative impact on gold prices in FY 2015, which fell 8% y-o-y to average $1,160/oz. Q4 2015 was the weakest quarter, with an average price of $1,106/oz as the long-awaited Federal Reserve rate hike took place in December 2015. However, concerns over global growth, turbulence on financial markets, low inflation expectations, contracting oil prices, and doubts over the anticipated rate of interest rate hikes in the US all helped gold reassume its safe haven status. This has led to FY 2016 seeing the most impressive start to the year since FY 1980.