Investment demand for gold likely to stay strong
miningweekly.com
By: Liezel Hill
19th August 2009
Updated 4 hours ago
TORONTO (miningweekly.com) – Although the outlook for jewellery and industrial demand for gold will remain soft as long as conditions in western economies remain “fragile”, investment demand for the yellow metal will likely stay firm, the World Gold Council (WGC) said on Wednesday.
As far as demand from traditional nonwestern gold markets goes, these buyers tend to behave “tactically”, with a primary focus on the gold price, the group said in the second quarter 2009 edition of its Gold Demand Trends.
“Having taken profits through dishoarding or the selling back of jewellery, consumers are now waiting for an opportunity to buy back some of this gold at lower prices,” the WGC said.
“While there are clear pockets of demand on moves in the gold price towards $900/oz to 910/oz, this activity tends to abate as the gold price moves higher.”
During the second quarter, the volume of total identifiable gold demand was down 9% compared with the year earlier, or 6% in US dollar terms, to $21,3-billion.
“The decline in tonnage relative to the second quarter of 2008 was attributable to weakness in jewellery and industrial demand, offset to a considerable extent by a significant increase in investment demand,” the WGC said.
However, during the 12 months ended June 2009, total tonnage was still a “healthy” 21% higher than the previous four quarters.
The US dollar price during the second quarter rose just 3% year-on-year, but consumers in other key markets saw much higher prices, including a 20% increase in Indian rupee terms, 28% in Turkish lira terms 31% in pound sterling terms and 18% in euro terms.
Identifiable investment demand in the second quarter totalled 222,4 t, up 46% on year-earlier levels and “very healthy” on a historical basis.
However, net investment demand eased significantly compared with the levels during the previous three quarters, when economic and financial uncertainty prompted “extreme levels” of haven buying.
As was the case in the first quarter, investment in so-called western and eastern markets continued to diverge.
“Bar hoarding, which largely covers the non-western markets, was down 36% on year-earlier levels, with investors choosing to take profits due to the high gold price.
“In contrast, other identified retail investment, which largely covers the western markets, rose from just 4,7 t in the second quarter of 2008 to 38,7 t in the second quarter of 2009,” the WGC said.
“Once again, this is below the levels experienced during the peak of the credit crisis but nevertheless healthy on a historical basis.”
Demand from exchange-traded funds was also robust when viewed on a historical basis, but, at 56,7 t, was significantly lower than in the first quarter of this year.
Unsurprisingly, jewellery demand in the second quarter was 22% lower than a year earlier, with the weakness spread evenly across all markets, with the exception of mainland China, where jewellery demand rose 6% in tonnage terms, year-on-year.
Gold supply during the quarter rose 14% compared with last year, mainly thanks to lower levels of producer dehedging, with mine output and recycling activity making a smaller contribution.
Compared with the first quarter, however second quarter supply was 23% lower, with the main contributor being a reduction in recycled gold.
OFFICIAL SECTOR
According to the WGC, net central bank sales, of 38,5 t in the first half of 2009 (compared with 145,8 ts in the first half of 2008) were the lowest for 12 years.
“The move to net purchases by the central bank sector in Q2 reflected low levels of selling by the signatories to the central bank gold agreement and modest purchases by non-member banks,” the WGC said.
A new agreement was signed earlier this month, with a new ceiling of 400 t per year compared with the previous 500 t.
“The recent trend of lower gold sales by the signatories to the central bank gold agreement and pockets of buying outside the agreement suggests that central banks, like investors, are thinking about portfolio diversification.
“Total net sales are likely to remain subdued, even with the prospect of IMF selling,” the council said. |
