Central banks net gold buyers for the second quarter in succession - WGC
Negative numbers abounded with respect to gold demand in the third quarter of this year, and the fourth quarter outlook is "mixed". It is arguable that the demand in the market is now past the worst. India has regained its position as the largest jewellery consumer
Author: Rhona O'Connell
Posted: Friday , 20 Nov 2009
LONDON -
mineweb.com
The latest "Gold Demand Trends" publication from the World Gold Council (WGC), using figures compiled by independent research experts GFMS Ltd., shows that whichever way you cut it, gold demand in the third quarter of this year was down against Q3 2008. As the WGC points out, however, the third quarter of 2008 was "exceptionally strong". In fact, at more than 1,200 tonnes, total fabrication, bar & coin and "other" retail investment, plus ETFs etc, exceeded 1,200 tonnes in the third quarter of 2008, the highest quarter since the start of 2005 and probably the highest quarter ever.
A strict comparison with Q3 2008, may, therefore, not be entirely fair and it is probably more instructive to look at the change over successive quarters. The accompanying chart reflects the shifts in the market; total fabrication and identifiable investment demand, including ETF activity, amounted to 818 tonnes in the third quarter against 731 tonnes in the second quarter, which had been the lowest in the past five years. This past quarter was the fifth lowest over the period, but the overall trend is once again looking encouraging. Jewellery and investment demand in "non-western" markets rebounded from the very low levels of the first quarter of the year and industrial demand started to recover in response to an improvement in economic conditions.
The WGC notes that in dollar terms, identifiable gold demand, at $24.7 billion, was up by 15% from the second quarter, "as gold's long-term store of value and wealth preservation qualities continued to attract investors and consumers". Expenditure was almost equal to the average of that in the first two quarters of this year and the Council avers that the outlook is positive overall, "with absolute levels of demand likely to remain well supported by continued economic and currency uncertainty, inflation concerns and the search for diversification. In the official sector, we expect to see a continuing trend of central banks diversifying their dollar exposure in favour of the proven store of value represented by gold".
Gold demand by quarter; metric tonnes
Source: World Gold Council
Overall identifiable investment demand (ETFs, bars and coins) reached 227 tonnes, which was a slight increase on the second quarter, although down by 46% from the extreme highs of Q3 2008. Bar and coin investment continued to strengthen, reaching 143 tonnes in the quarter, up from 122 tonnes in the second quarter and 52 tonnes in the first quarter when high prices were having a heavy impact on demand in this sector.
The change in the balance of demand is quite nicely illustrated by looking at the total tonnages since the start of 2007. In that year, identifiable investment demand amounted to just 24% of jewellery gold fabrication demand. In 2008, it amounted to 45%; and in the first nine months of this year (bearing in mind of course that the Q3 figures are provisional) it has reached 70% of fabrication demand.
Demand in most regions were down year-on-year, with the exception once again of Greater China, which registered growth of 10% over Q3 2008 to record gold consumer demand of a record 120 tonnes. An interesting element here was the strong growth in the 24-carat market.
Indian demand continued to improve. Jewellery demand reached 112 tonnes in the quarter, which is approaching the quarterly average for 2007 and 2008 combined, and a smart rebound from the very heavy falls of the first quarter, when jewellery demand dropped to just 34 tonnes. Investment coin+bar purchases also improved although more slowly, to reach 26 tonnes after 21 tonnes in the second quarter - and a net return of 17 tonnes in Q1. India regained pole position in the market for jewellery demand, pushing China back into second place, while investment demand levels in the two countries were more or less even.
India has staged the most impressive improvement in demand compared with the first quarter of this year (both in terms of tonnage and on a proportional basis), rising by a factor of almost four. Chinese demand has almost doubled, while the Middle East has risen by almost 140%, Turkey has almost doubled and the US has increased by roughly the same rate as Middle Eastern demand.
The shifts in demand also need to be put into perspective in terms of the balance between identifiable supply and demand. The market has been in a surplus of supply over demand in each quarter so far this year. Although demand in Q1 was more than 1,000 tonnes, scrap supply was also at a massive high (and probably only constrained by available refinery capacity) and this component has been contracting since, with the third quarter rate of return back to "normal" levels. The "surplus" in the market in Q3 was just 31 tonnes (4% of demand), so the market was more or less in balance.
Meanwhile the official sector was a net purchaser of gold in the third quarter, although the figures are low, at five tonnes in Q2 and 15 tonnes in Q3. The underlying trend is "expected to remain intact" as central banks, like private investors, continue to look for diversifiers, especially with respect to the dollar. Central banks outside the CBGA agreement that the WGC identified as gold purchasers included Mexico and the Philippines.
WGC suggests that the further quarter outlook remains mixed. Jewellery sales are expected to continue to struggle (with the exception of China) as a result of higher prices, although there is still the potential for pockets of buying on price dips. WGC does, however, say that it is still unclear from where that support will emerge, now that the price has moved into a new trading range.
Once the market as a whole has come to accept that new range, then buyers are likely emerge on dips in all the usual consuming regions - subject, of course, to affordability. |
