The long-awaited World Gold Council (WGC) report Gold Demand Trends for 2013 reveals what we have been saying all along — record physical gold demand could not quite keep up with the panic selling of paper gold investments on Wall Street, which is why we characterized 2013 as a golden "tug of war."

In 2013, 880.8 metric tons of gold* were sold out of the warehouses of the various gold exchange-traded funds (ETFs) in a panic attack that began over the weekend of April 12 through April15, when over 100 tons of gold were sold short on Wall Street. This Wall Street sell-off — which, by its massive nature, appears to be a one-time event — more than offset physical demand, which came in at about 75 percent of ETF outflows.

Last year marked the largest one-year increase in consumer gold demand since the WGC began keeping records. The WGC noted that many of the institutional 400-ounce Good Delivery bars had to be broken up into smaller units, because most of the demand in 2013 was coming from individuals, not institutions. In addition, the major refiners in North America, Switzerland and Dubai worked overtime to satisfy demand from "consumers in the more price-sensitive markets such as India and China." Speaking of India, WGC said gold demand in India rose 13 percent to 975 tons in 2013 versus 864 tons in 2012, despite tight controls on gold imports.

Physical Demand Is Rising Even Faster in Early 2014

In 2014, these bullish demand trends are continuing, especially in Asia. In January, a record 246 tons of gold were shipped out of the Shanghai Gold Exchange for physical delivery within China. In addition, Switzerland shipped 80 percent of its gold and silver exports to Asia last month, according to the Swiss Federal Customs Administration. Hong Kong was the top destination (44 percent), with India next in line, at 14 percent.

China's demand is rising so fast that they need to build more storage facilities, so the Chinese Gold & Silver Exchange Society (CGSE) in Hong Kong will build a 1,500-ton depository and open a new physical bullion trading exchange in the mainland later this year. In particular, they want to open up operations in the "free-trade zone" of Shenzhen in order to offer mainland Chinese a new "mini-Hong Kong." There are already about 4,000 jewelry makers in Shenzhen who will now have quicker access to gold supplies.

Wall Street Is Also Beginning to Get Back Into Gold

Meanwhile, Wall Street has stopped selling gold short. Gold's price rise caught short sellers flat-footed. Many are defending their negative views on gold. Most of Wall Street doesn't "get" gold, but once the precious metals' upward momentum is confirmed by consistent and persistent global physical demand, even some of Wall Street's gold bears will have to change their tune and get back on the gold bandwagon. (Some Wall Streeters just got back on board when gold passed its 200-day moving average Feb. 14.)

On Feb. 14, quarterly Securities and Exchange Commission filings revealed that gold-friendly hedge fund manager John Paulson did not sell any of his 10.2 million shares of the leading gold ETF last quarter, and George Soros bought a large amount of shares in the world's biggest gold miner. Early this year, the Commodity Futures Trading Commission said hedge funds raised their bullish (net-long) position on gold by 17 percent to 69,291 futures and options contracts in the week ended Feb. 11. UBS said its U.S. clients are becoming "friendlier" to gold now that it has traded above $1,300 for over a week.

*A metric ton equals 1,000 kilograms, or 2,204 pounds avoirdupois. In this article, we use the American term "ton" for the international term "tonne" (or metric ton).

About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report. Discover more by Clicking Here Now.