A GOLDEN PILLAR
ANALYSIS OF LEBANON’S GOLD MARKET
Bankmed - Market & Economic Research Division
SPECIAL REPORT
Analysis of Lebanon’s Gold Market - February 2016
Table of Contents
Table of Contents
1
World Gold Market
2
Global Gold Demand
3
Jewelry
4
Investment
4
Technology
5
Central Banks
5
Global Gold Supply
7
Lebanon’s Gold Market
8
Trade of Precious Metals by Type in 2015
9
Lebanon's Gold Trade
10
Lebanon’s Gold Trade by Country
11
Central Bank of Lebanon's Gold Holdings
12
Lebanon’s Trade of Diamonds and Jewelry
15
Lebanon’s Trade of diamonds by Country
16
Lebanon’s Trade of Jewelry by Country
16
Conclusion17
Bankmed - Market & Economic Research Division
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SPECIAL REPORT
Analysis of Lebanon’s Gold Market - February 2016
WORLD GOLD MARKET
For many centuries, gold has been recognized for its cultural significance and powerful
monetary value. Till this day, gold is still perceived as a sign of wealth and power, an aspect
that encourages central banks with large gold reserves to convey positive sentiments about
their economies' health. While gold is still extensively used in jewelry, it is also considered
an investment, either directly through ownership of coins and bars, or indirectly as hedging
strategies through exchange traded funds. In addition, technological advancement has
utilized gold in electronic appliances and medical services, adding further to its role
and value. In contrast to other commodities, gold is universally acceptable, durable,
transportable, and authentic. Its economic traits, with respect to store of value and a hedge
against inflation, have long made gold a safe haven asset which influenced its global
demand and supply trends and consequently affected its international price trend.
Gold Spot Price (USD)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Source: World Gold Council
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GLOBAL GOLD DEMAND
Globally, gold has a cultural and financial value from which its demand elapses. The diverse
uses of gold in jewelry, technology, and by central banks and investors, have shaped its
demand across the various sectors over the global economic cycle; however a typical base
level of demand remains sustained. Specifically, investment in gold recorded the highest
year-on-year increase of 27% as at the third quarter of 2015 when compared to other forms
of gold demand. As a result, global gold demand increased by a yearly 8%.
Source: World Gold Council
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Analysis of Lebanon’s Gold Market - February 2016
GLOBAL GOLD DEMAND
Jewelry
Gold jewelry has a universal status with respect to its value and beauty. Over the period
2012-2015, jewelry accounted for 54% of the world gold demand on average. Gold jewelry
demand reached 2,225 tons as at the third quarter of 2015. Half of this demand came from
India and China, which constituted the world’s largest markets for gold jewelry in 2014. With
a growing population and an increase in wealth in Asia, gold demand in jewelry is expected
to remain at high levels in the coming years.
Investment
As part of investment strategy, gold is perceived by institutional and private investors as
a mean for risk management and capital preservation. Over the years, it is shown that an
allocation of gold within different portfolios improves its overall performance by protecting
any downside risks. Investment in gold is made directly through ownership and trading of
bars and coins and indirectly via exchange traded funds. Investment in gold accounted for
an average of 24% of the world gold demand over the period 2012-2015. Though investment
in gold has fallen from its higher level in 2012, demand for gold as an investment recorded
a year-on-year 27% increase as at the third quarter of 2015, reaching 687 tons. Since gold
prices lack correlation with other assets, investing in gold is used to diversify portfolios and
hedge against currency and inflation risks.
According to the World Gold Council, gold can be used in portfolios to protect global
purchasing power, reduce portfolio volatility, and minimize losses during shocks.
Source: World Gold Council
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GLOBAL GOLD DEMAND
Technology
Manufactures all over the world, specifically those with high specification components, utilize
gold in their production due to its conductivity, malleability, and resistance to corrosion.
Gold is not only used in the electronic and dentistry industry, but it is also used across a
variety of high-technology industries, including space industry. Gold demand in technology
accounted for 7.5% of global gold demand as at the third quarter of 2015 reaching 268
tons.
Central Banks
Across different economies, central banks are the leaders of the world’s largest long-term
investment portfolios. Central banks use gold as part of their investment strategies to
mitigate risks associated with their portfolios and to hedge against economic related risks
such as currency and inflation risks. As gold has a long history in maintaining its purchasing
power, gold plays an essential role in reserve-asset management due its high liquidity.
Central banks' demand for gold accounted for 15.6% of global gold demand and amounted
to 430 tons as at the third quarter of 2015.
Source: World Gold Council International Financial Statistics November 2015
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GLOBAL GOLD DEMAND
According to the World Gold Council – International Financial Statistics, the United States
of America is at the top of the list with total gold holdings of 8,133 tons equivalent to USD
254,226 million, followed by Germany with a total of 3,381 tons equivalent to USD 105,679
million in gold reserves. Lebanon’s gold holdings rank after the United Kingdom with a total
gold reserve of 287 tons equal to USD 8,966 million as at the third quarter of 2015.
Central Banks' Gold Holdings
(Tons)
United States
8,133
Germany
3,381
IMF
Italy
2,452
France
China
1,709
Russia
Switzerland
Japan
765
Netherlands
India
558
ECB
Turkey
504
Taiwan
Portugal
Venezuela
Saudi Arabia
United Kingdom
Lebanon
287
Spain
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Source: World Gold Council
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Analysis of Lebanon’s Gold Market - February 2016
GLOBAL GOLD SUPPLY
Across the years, the sources of gold have become geographically diverse just like the
sources of gold demand. Gold is supplied through mining including net producer hedging
which measures the impact in the physical market of mining companies' gold forward sales,
loans, and options positions. Gold supply resources also include recycled gold.
Global gold supply was nearly stable between 2013 and 2014, however, as at the third
quarter of 2015, global gold supply exhibited an expansion of 10.7% reaching 4,738 tons.
Source: World Gold Council
In 2014, China was the world’s largest producer accounting for 15% of total production.
Asia produces 22% of mined gold, while Central and South America produces around 17%,
and North America supplies around 15%.
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Analysis of Lebanon’s Gold Market - February 2016
LEBANON’S GOLD MARKET
Lebanon is well known for its trade of precious metals which is comprised of gold, diamonds,
articles of jewelry, silver, platinum, pearls, and precious stones. Over the years, Lebanon
has been characterized as a net importer of precious metals after suffering several trade
deficits.
In 2015, exports of precious metals decreased by a yearly 20% from USD 542 million to
USD 434 million. Likewise, imports of precious metals decreased from USD 976 million to
USD 822 million, thereby declining by 15.7%. Except for the year 2012, Lebanon’s trade of
precious metals recorded a deficit which increased from USD 366 million in 2013 to USD
388 million in 2015.
Value of Exports & Imports of Precious Metals
1,724
1,585
USD Million
1,136
976
-­‐1 5.7%
822
770
542
-­‐2 0%
434
2012
2013
2014
2015
Exports of Precious Metals
2012
2013
2014
2015
Imports of Precious Metals
Source: Lebanese Customs
A closer look on the value and volume of exports and imports of precious metals shows that
the volume of exports and imports of precious metals also declined by 17% and 20.3%,
respectively, in the year 2015.
As at end-year 2015, the volume of exports of precious metals fell to 71,023 net kilograms,
while the volume of imports declined to 1,022,345 net kilograms.
Source: Lebanese Customs
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Analysis of Lebanon’s Gold Market - February 2016
LEBANON’S GOLD MARKET
Trade of Precious Metals by Type in 2015
A year-on-year analysis of exports and imports of precious metals by type shows that in
2015, gold exports significantly decreased by a yearly 35%, which largely caused a decline
in total exports of precious metals by 20%. This is due to the fact that gold exports represent
55% of total exports of precious metals and as such the drop in exports of gold largely
offsets the increase in exports of diamonds, precious stones, and imitation jewelry, synthetic
precious metals, and silver.
Source: Lebanese Customs
Gold imports represented 61% of total imports of precious metals in 2015. For this reason,
the decline in gold imports by 25% outweighs the increase in imports of articles of jewelry
of a yearly 41%. As such, total imports of precious metals declined by a yearly 15.8%.
Source: Lebanese Customs
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Analysis of Lebanon’s Gold Market - February 2016
LEBANON’S GOLD MARKET
Lebanon's Gold Trade
In light of lower global gold prices, gold exports and imports witnessed a sharp decline.
Exports of gold fell by 60% in 2013 followed by a 34% decline in 2014, reaching USD 366
million. The year 2015 witnessed a further decline in the value of gold exports by 35%
reaching USD 237 million.
The change in the volume of gold exports was lesser than the change in the value of gold
exports, yet it recorded a year-on-year decline of 28%, reaching 7,314 net kilograms in
2015, down from 10,139 net kilograms in 2014.
Source: Lebanese Customs
Similarly, the value of gold imports fell by 28% in 2013 followed by a 23% decline in 2014
reaching USD 658 million. As at end-year 2015, the value of gold imports declined by a
year-on-year 25% reaching USD 496 million. Moreover, the volume of gold imports declined
by a lesser amount than the value of gold imports during which it amounted to 14,460 net
kilograms in 2015 down from 17,001 net kilograms in 2014, thus, declining by 15%.
Source: Lebanese Customs
As such, the drop in the total value of gold trade outweighs the drop in total volume over
the last three years. This is attributed to a price-effect, starting in 2014 when gold prices
declined to an average of USD 1,255 per ounce down from an average of USD 1,394 per
ounce in 2013, and further declining to an average of USD 1,160 per ounce in 2015, thereby
falling by around 17% between 2013 and 2015.
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Analysis of Lebanon’s Gold Market - February 2016
LEBANON’S GOLD MARKET
Lebanon’s Gold Trade by Country
Lebanon’s gold exports are allocated across South Africa and Switzerland with the former
taking up a share of 81% of total gold exports in 2015. However, Lebanon imports gold from
several countries where 40% of total imported gold comes from Switzerland, followed by
Togo with a share of 32%.
Value of Gold Exports by Country
(2015)
Value of Gold Imports by Country
(2015)
Source:
Lebanese Customs
Total
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Analysis of Lebanon’s Gold Market - February 2016
CENTRAL BANK OF LEBANON'S GOLD HOLDINGS
Nationally and regionally, the Central Bank of Lebanon is known for its sound monetary
policies and stringent rules and regulations. The Bank has long been able to absorb adverse
shocks to the Lebanese economy through its large foreign reserves base as well as its large
gold holdings. According to the World Gold Council, Lebanon’s gold holdings have been
maintained at 287 tons for the last fifteen years.
Nevertheless, over the years, the value of gold holdings has been slightly fluctuating as a
result of changes in gold prices, reaching a peak of USD 15.3 billion in 2012, when prices
rose to an average of USD 1,678 per ounce in the same year. However, the value of gold
holdings has declined to USD 9.9 billion in 2015, as a result of an approximate 30% drop in
international gold prices over the period between 2012 and 2015.
Central Bank of Lebanon's Gold Holdings
(USD Billion)
13.0
10.1
14.4
15.3
11.111.0
9.9
7.6 8.0
3.6 3.3 3.1 3.6 3.5 3.6 3.4
2.7 2.7 2.7 2.5 2.6 3.2
3.8 4.0
4.7
5.8
Source: Banque du Liban
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Analysis of Lebanon’s Gold Market - February 2016
CENTRAL BANK OF LEBANON'S GOLD HOLDINGS
Lebanon ranks second after Switzerland in gold reserves per capita with USD 3,300 gold
reserves per person. Third comes Germany, followed by Italy and France with reserves per
capita of USD 1,900, USD 1,800, USD 1,700, respectively. The United States, which has the
largest gold reserves in the world amounting to USD 254,226 million, has gold reserves per
capita equal to USD 1,300.
Gold Reserves per Capita
(in USD '000)
Switzerland
6.2
Lebanon
3.3
Germany
1.9
Italy
1.8
France
1.7
Netherlands
1.65
Portugal
1.61
Austria
1.5
USA
1.3
Singapore
1.2
Kuwait
1
Belgium
0.9
Cyprus
0.7
Sweden
Venezuela
-0.5
0.6
0.5
0.5
1.5
2.5
3.5
4.5
5.5
6.5
Source: World Gold Council
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Analysis of Lebanon’s Gold Market - February 2016
CENTRAL BANK OF LEBANON'S GOLD HOLDINGS
When comparing gold holdings within the Arab region, Lebanon also ranks second after
Saudi Arabia with 287 tons of gold making up 20% of Lebanon’s reserves. As such, Lebanon
has the highest gold holdings as a percentage of reserves in the region. Algeria comes
third, followed by Libya and Iraq with total gold holdings of 174 tons, 117 tons, and 90 tons,
respectively.
Source: Lebanese Customs
The Central Bank of Lebanon has exceeded USD 46 billion in gross reserves, including
gold, as at end-year 2015. Gross reserves are 90% of money supply M2; (where "M2" is
equal to "M1" (currency in circulation + demand deposits in LBP) + Other deposits in LBP),
providing Lebanon with sufficient means to confront any adverse shocks to the economy.
Gross Reserves & Gold Holdings
(USD Billion)
133%
103%
90%
8.1
9.3
8.7
82%
9.1
77%
10.3
64% 60% 61%
8.3
6.9
8.3
81%
90%
78%
103%
106% 101% 35.7
25.1
41.6
105% 106%
45.2 45.3
116%
105%
42.8 43.4
94%
46.9
89% 90%
16.0 17.4
14.0 13.5 14.6
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gross Reserves (including gold)
Gross Reserves/M2
Source: Banque du Liban
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Analysis of Lebanon’s Gold Market - February 2016
LEBANON’S TRADE OF DIAMONDS AND JEWELRY
Besides gold trade, Lebanon’s trade of precious metals also includes the trade of diamonds
and jewelry. Exports of diamonds make up 26% of total exports of precious metals followed
by exports of jewelry with a 12% share in 2015. Similarly, imports of diamonds and jewelry
account for 27% and 7% of total imports of precious metals, respectively.
Exports of Precious Metals by Type
(2015)
Imports of Precious Metals by Type
(2015)
Source: Lebanese Customs
In 2015, exports of diamonds reached USD 111 million increasing by a yearly 22%. Imports
of diamonds, however, recorded a year-on-year decline of 3%, reaching USD 218 million.
The trade of articles of jewelry came after Lebanon’s trade of gold and diamonds during
which in 2015, exports of jewelry amounted to USD 54 million down from USD 57 million in
2014, thereby declining by a yearly 5%. Imports of jewelry reached USD 58 million in 2015
increasing by a yearly 41% from USD 41 million in 2014.
Source: Lebanese Customs
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Analysis of Lebanon’s Gold Market - February 2016
LEBANON’S TRADE OF DIAMONDS AND JEWELRY
Lebanon’s Trade of diamonds by Country
In 2015, exports of diamonds in Lebanon were mainly focused on the United Arab Emirates
(UAE) having a share of 80% of diamonds exports, followed by the United States.
Moreover, 53% of total imports of diamonds comes from Belgium. Second comes UAE with
an 18% share of diamonds imports.
Value of Diamonds Exports by Country
(2015)
Value of Diamonds Imports by Country
(2015)
Source: Lebanese Customs
Lebanon’s Trade of Jewelry by Country
Jewelry export destinations are mainly focused on Saudi Arabia with a 37% share of total
jewelry exports followed by the UAE with a 26% share. On the other hand, Italy is the main
market for jewelry imports with a share of 66% of total jewelry imports in 2015.
Value of Jewelry Exports by Country
(2015)
Value of Jewelry Imports by Country
(2015)
Source: Lebanese Customs
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Analysis of Lebanon’s Gold Market - February 2016
CONCLUSION
Even though it is listed as a commodity, gold continues to play a pivotal role in the world’s
economy. The diverse uses of gold has made it an essential element for individuals, retail
and institutional investors, as well as central banks across the world. Most importantly, gold
still stands as an essential store of value in times of crisis. In Lebanon, gold is considered
a core element in the trade of precious metals although its trade has been contracting over
the previous years. Nevertheless, gold remains a vital component for sustaining Lebanon’s
economy in face of adverse economic shocks through the large gold holdings of the Central
Bank of Lebanon.
Mazen Soueid, Stephanie Ghanem, Ziad Hariri, Rita Nehme and Nadine Abdel Fattah
Disclaimer:
This material has been prepared by Bankmed sal based on publicly available information and personal analysis. It is provided for information purposes only.
It is not intended to be used as a research tool nor as a basis or reference for any decision. The information contained herein including any opinion, news and
analysis, is based on various publicly available sources believed to be reliable but its accuracy cannot be guaranteed and may be subject to change without
notice. Bankmed, sal does not guarantee the accuracy, timeliness, continued availability or completeness of such information. All data contained herein are
indicative. Neither the information provided nor any opinion expressed therein, constitutes a solicitation, offer, personal recommendation or advice. Bankmed, sal
does not assume any liability for direct, indirect, incidental or consequential damages resulting from any use of the information contained herein.
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