Dubai: A strong second-half demand - driven by retail customers in China, India and Middle East as well as the world’s central banks - did more than enough to put the shine back on gold by end-2015. Such was the buying support extended to the metal and its jewellery spin-offs that this more than compensated for a relatively barren run in the first six months of last year.

This was enough to ensure that global gold demand in 2015 totalled 4,212 tonnes, more or less unchanged from the 2014 tally of 4,226 tonnes. Jewellery demand, specifically, was lower by 3 per cent to 2,415 tonnes from 2,481 tonnes the previous year, with weak offtake during the first-half being solely responsible for this.

“Clearly, it was a year of two distinct halves,” said John Mulligan, Head of Member and Investor Relations at World Gold Council, which has issued its latest ‘Gold Demand Trends’ report. “In the first half, discretionary spending took a hit in China and India; there was the stock market crash in China, uncertainty over its economy and the doom and gloom spilled over into the buying of gold.

“In India, jewellery sales were dampened by weak consumer sentiments in the first half. But the situation changed in the second, to the extent that when 2015 got over, India had the third largest annual offtake of gold ever.”

Even in key markets for the metal in the Middle East, a combination of factors pulled down gold buying among shoppers. Plus, “The oil price uncertainty and the security issue had an impact in the region, which accounted for 65 tonnes in 2015,” said Mulligan. But the final regional tally does not make 2015 a “terribly weak year”.

In fact, where shoppers hesitated over jewellery buying, Middle East central banks were more than willing to pick up the slack. There was ample buying by the UAE and Jordan banks, according to WGC. It was a pattern that their counterparts in Russia and China followed as well, as part of a calculated bid to reduce their dollar-denominated exposures.

The central bank support for gold “hasn’t come as a surprise... in fact it’s the 20th straight quarter for net purchases,” said Mulligan. “They are taking the longer view on gold as a reserve asset and not going by its pricing” during a particular phase.

Through 2015, central banks’ demand weighed in at 588 tonnes from 584 tonnes a year earlier.

There also seems to be more of a convergence between global demand for gold and its supply, with mine production falling to its lowest level since 2008. In fact, production actually contracted during Q4-15 - the first quarterly drop since 2008.

“Mine owners were very slow to respond to the price changes (with prices being under constant pressure all through last year),” said Mulligan. “But since 2013 there has been an effort by mining companies to reduce costs and deliver in a challenging price environment. This meant mothballing or disposing of costly operations.

“The eventual thinning of the project pipeline will take years to impact on the production.”

Last year, total supply recorded a 4 per cent drop 4,258 tonnes against the 4,414 tonnes in 2014. This is ‘reflective of both recycling hitting multi-year lows and mine production growth falling to its lowest level since 2008’, WGC reports.

In Q4-15 alone, the decline was a substantial 10 per cent to 1,037 tonnes compared to 1,152 tonnes for the same period in 2014.

“Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars and coins by households across the world, led by India and China,” said Alistair Hewitt, Head of Market Intelligence at WGC, in a statement.

“Official sector purchases, combined with strength in the Asian markets and continuing momentum in the US and Europe, reinforced gold’s credentials as a portfolio diversifier, a wealth preservation tool and a hedge against a range of risks.”

“The investment case for gold is as strong as ever. While stockmarkets have wobbled, gold has performed well.”