Gold Prices Rally as Central-Bank Demand Shows Jump, Japanese Households Buy for 1st Time Since 2005

WHOLESALE gold prices rallied from a new 6-week Dollar low at $1641 per ounce early Thursday in London,  rising as stock markets fell and new data showed the 17-nation Eurozone economy contracting faster than forecast at the end of 2012.

GDP across the 330-million citizen currency union fell 0.6% in Oct. to Dec., the heaviest fall since world stock markets hit decade lows in early 2009.

Gold prices for Euro investors today jumped €16 per ounce from Wednesday's trough at €1218 – an 8-month low when first hit at the start of this month.

Gold priced in Sterling ticked higher to £1060 per ounce while UK government debt prices fell again, pushing 10-year gilt yields up to a 10-month high of 2.27%.

"The outlook for gold demand remains strong in 2013," says Marcus Grubb, managing director investment at the World Gold Council, announcing today the market-development body's latest Gold Demand Trends report.

"We expect jewelry demand to remain buoyant, driven largely by wealth creation in India and China, and the re-synchronization of economic growth in both countries."

All told, full-year gold demand was the second-highest on record according to the World Gold Council's 2012 data, down 4% by weight from 2011 but 2% higher by value at $236 billion.

Gold supply slipped by 1%, with a slight rise to new records in global mining outweighed by a drop in the recycling of existing above-ground stocks.

So-called "scrap" supply fell 3% for 2012 as a whole, despite average gold prices rising more than 6% to an annual record of $1669 per ounce.

"The main drag on gold prices [recently]," says INTL F.C.Stone's Edward Meir in a note "is the fact that we are seeing money move into industrial metals, corporate bonds, sovereign paper and equities.

"[That is] leaving much less of the investment pie available for gold and silver."

But if "examined in a longer term context," says today's World Gold Council report, "annual gold demand was 15% higher [in 2012] than the average for the previous five years, with much of that growth coming from the physical bar segment of investment demand and central-bank purchases."

Central banks as a group bought a 5-decade record of 534 tonnes in 2012, raising their US Dollar spend on buying gold for their currency reserves by 24%.

Despite rising prices, gold jewelry demand also rose by value, up 3% to a new record of $102.4bn.

"That clearly illustrates that gold is capturing an increasing share of wallet," says the report.

Studying the World Gold Council data, "[Indian] purchases were clearly brought forward in anticipation of import duty hikes," says Eugen Weinberg's team at Commerzbank today.

A flattening in Chinese demand left India as the world's #1 consumer yet again, defying many analysts forecasts.

Japanese households became net buyers of gold for the first time since 2005, albeit of just 7.6 tonnes, with the dis-hoarding of private investment holdings slowing sharply as the new Abe administration vowed to weaken the Yen to reflate the economy in the fourth quarter.

Soros Fund Management – which raised its allocation to gold by one-half in the third quarter of 2012 – has made about $1 billion in profits betting on the Yen's 20% fall since November, according to the Wall Street Journal today.

Fellow gold investors David Einhorn at Greenlight Capital and Kyle Bass at Hayman Capital Management have also made "big trading profits" betting against the Japanese currency, the WSJ adds.

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