The World Gold Council (WGC) has released its annual Global Demand Trends for the year 2014, and there are frankly some real surprises here. You would probably expect that an organization like the WGC, whose sole purpose is tracking developments and trends around gold, would be 100% positive and bullish. That just isn’t always the case.

The 2014 global trends sure seem to point to underlying trends into 2015 and beyond. With a static supply of gold, possibly reaching close to an equilibrium in supply and demand, it shows a serious fight beginning to take place — or total offsetting forces. Investment demand and central bank purchases held strong, while industry demand from jewelry and technology were weak.

Before getting into demand trends, the first look has to be at supply. After all, they call it “supply and demand” in economics rather than “demand and supply.” This report also has a serious implication for the gold exchange traded funds (ETF) as well, for gold itself and for the gold miners.

Supply was static in 2014 at 4,278 tonnes versus 4,273 tonnes in 2013. The WGC showed that record mine production was countered by a drop in recycling activity. It said, “Recycled gold fell to a seven-year low, while annual mine production grew for the sixth straight year, up 2% to a record of 3,114 tonnes.” This left the full-year supply virtually unchanged at 4,278 tonnes.

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On demand trends, the actual total gold demand was 3,923.7 tonnes in 2014, down from 4,088 tonnes in 2013 and down from 4,585 tonnes in 2012. If you add in OTC investments and stock flows, this is what makes up for the difference between the stated gold demand and total demand.

Central bank purchases rose by 17% to 477 tonnes, and central bank selling continued to be insignificant. As a reminder, central banks can be the most dominant of all forces at any snapshot in time. After all, very few individuals can decide that they have to buy or sell a few billion dollars worth of gold at a time. The WGC said, “Central bank net purchases totaled 477 tonnes in 2014, 17% above 2013’s impressive 409 tonnes.” What stood out here is that this was represented as the second highest year of central bank net purchases for 50 years. The record was the 544 tonnes added to reserves in 2012.

Investment demand was also higher by 2%. The 905 tonnes of demand in 2014 was characterized as a situation in which sentiment remained muted, but one where outflows in ETFs were lower. The WGC said that ETF redemptions slowed to a fraction of the hefty outflows witnessed in 2013, while demand for bar and coins among smaller investors dropped by 40%. The WGC countered, “However, the step change in bar and coin demand sparked off by the financial crisis shows no sign of reversing.” Central banks may be the largest single sources out there, but guess what happens when thousands of investors decide within a day or a few days to buy thousands of dollars worth of gold via ETFs? Here is a hint: Ten thousand gold buyers who decide to buy $10,000 worth of gold is $100 million, and there are many more than ten thousand gold bugs.

More trends on investment are as follows for 2014 (vs. 2013):

• Physical bar demand fell to 807.8 tonnes from 1,385 tonnes.
• Official coin demand fell to 178.5 tonnes from 276.6 tonnes.
• Medals/imitation coin demand fell to 77.4 tonnes from 103.8 tonnes.

The saving grace for the representation of total “investment” demand rising to 904.6 tonnes in 2014 from 885.4 tonnes in 2013 was that outflows in ETFs and similar investing products were -159.1 tonnes in 2014 versus -880 tonnes in 2013.

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When it comes to gold ETFs and exchange traded products (ETPs), there is effectively no rival in size to the SPDR Gold Trust (NYSEMKT: GLD). This ETP has cratered from the peak along with gold, but it still has some 773.3 tonnes of gold in it, now worth some $30.37 billion in total value. Even in the first half of 2013, we showed that this ETF had more gold in it than almost all nations. That was shown to be 1,154.34 tonnes in mid-April 2013 with a value of $51.757 billion at that time. We also showed that the “GLD ETF” held some 1,276.6 tonnes of gold worth some $63.5 billion in mid-May 2012, implying that the dollar value of the “GLD ETP” has been cut in half from then to now, even though the tonnage is down only about 39%.

The WGC said of the ETF reflection:

The positive year-on-year comparison is somewhat misleading: ETF outflows slowed to a fraction of the hefty 2013 total and therefore acted as less of a drag on investment. Demand for bar and coins among smaller investors dropped by 40%. This was again largely a function of the sheer strength of demand in 2013.

Jewelry demand fell 10% to 2,153 tonnes in 2014. The WGC points out that this remains above the 2,053 tonnes average over the past five years. It also points out that the demand for jewelry was unsurprising after what was called phenomenal strength in 2013. It noted, “Demand gradually recovered throughout the year, culminating in the strongest Q4 since 2007.”

Technology’s lower demand for gold might seem like a surprise. After all, aren’t technology and consumer electronics doing just wonderfully? The reason appears to be a migration to other elements and materials than gold. The WGC showed that total technology demand declined to 389 tonnes in 2014, highlighting the trend as one in which substitution to cheaper alternatives persists. Still, this gold demand from technology was said to be the lowest level since 2003. The WGC said, “Sluggish economic conditions in key markets and ongoing substitution away from gold remain the driving forces behind the 5% drop last year.”

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Another consideration is that the demand trends are somewhat remarkable when you consider what has happened since gold peaked. The London PM fix in dollars per ounce was shown as $1,668.98 for 2012, falling to $1,411.23 in 2013, and then falling further to $1,266.40 in 2014. While gold had traded lower in recent days after challenging $1,300 in January, it was trading around $1,225 per ounce as of February 12.

Europe has not really started its rounds of quantitative easing, China and Japan are still trying to bolster their economies, India is expected to ease some of its restrictions and central banks everywhere are fighting deflation by whatever means they can come up with.

The WGC’s Marcus Grubb, Managing Director of Investment Strategy, said:

2014 was a year of stabilisation and innovation in the gold market, with annual gold demand down by just 4% after the record-breaking level of buying seen in 2013. It was a standout year for Indian jewellery, despite government restrictions on gold imports, reinforcing the nation’s affinity with gold. Meanwhile Chinese gold demand returned to those last seen in 2011/2012 as consumers and investors took time to digest the substantial volumes accumulated in 2013. What’s particularly notable about 2014 is that the striking shift in physical gold demand from West to East is now being followed by gold infrastructure development in Asia.

Also, there is still a debate of what to think about the gold miners and producers. There is the Market Vectors Gold Miners ETF (NYSEMKT: GDX), which trades around $21.10, with a 52-week range of $16.45 to $28.03. This ETF is worth some $7.3 billion in net assets, which tracks the major gold-mining stocks. This ETF traded north of $60 per share back in 2011, before bottoming out under $17 in late 2014.

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Imagine if investors begin to think it is time to buy gold or gold and gold-mining ETFs again.

Below is a table from the World Gold Council on supply and demand trends.

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