World Gold Council Provides Third Quarter Update Of Gold Demand Trends
As more and more pundits go for the whole "anchoring" thing and throw around numbers anywhere between $6,300 and -$0.99 per ounce as what the price for an ounce of gold should be, we present some actual data which demonstrates core supply and demand trends in the gold market. The World Gold Council's latest "Gold Demand Trends" quarterly update has been released, with the key message being that while end customer demand is collapsing (gee, the consumer must not be drinking Timmy's Kool-Aid just yet), "the central bank sector presents a positive story, with the underlying trend of improvement expected to remain intact. As with private investors, central banks are looking for diversifiers, and in particular, ways of diversifying their dollar exposure." Nuff said.
Some key points from the report:
- The volume of total identifiable gold demand in the third quarter of 2009 was down 34% on the levels of a year earlier at 800.3 tonnes, equivalent to a 27% decline in $US value terms to $US24.7bn.
- Of course, Q3 2008 was an exceptionally strong quarter, benefiting from the start of the safe haven investor flows in the west as financial sector concerns escalated as well as a surge in gold demand in several key non-western markets in response to a correction in the gold price. If we compare the 12 months to September 2009 against the corresponding period a year earlier,
tonnage demand was up 2%. Alternatively, if we take the average Q3 result over the five years to 2007 (832 tonnes) and compare Q3 2009 against this benchmark of a more typical Q3, the decline in tonnage is just 4%.
- While the $US gold price in Q3 2009 was 10% higher than in Q3 2008, over the same period the gold price rose 22% in Indian rupee terms, 36% in Turkish lira terms and 27% in pound sterling terms.
- All three sectors of gold demand experienced an increase in tonnage relative to Q2 2009, but a decline relative to Q3 2008. The biggest decline relative to year-earlier levels was in identifiable investment, which fell 46%. Using the five year average benchmark described earlier, investment recorded a 73% rise.
- Bar hoarding, which largely covers the non-western markets, improved 41% quarter-on-quarter to 81.2 tonnes. In contrast, other identified retail investment, which largely covers the western markets, eased 6% to 43.1 tonnes - however, the absolute level of investment remained very healthy on a historical basis.
- ETF demand, at 41.4 tonnes in Q3 2009, was robust on a historical basis but nevertheless marked a significant reduction on the 149.5 tonnes experienced in Q3 2008. Relative to Q2, the decline was 27%.
- Jewellery demand in Q3 2009 was 30% below year-earlier levels. Most countries recorded a decline, the most severe being India, Russia and Turkey (-42%, -52% and -55% respectively). In each case, the magnitude of decline was exacerbated by an exceptionally strong Q3 2008. The
exception to the trend was mainland China, where jewellery demand rose 8% in tonnage terms relative to year-earlier levels.
- Industrial demand recorded its second consecutive quarter-on-quarter improvement, and the magnitude of the decline relative to year earlier levels, at 11%, was almost half the decline recorded in Q2. The electronics sector was the main source of improvement.
- Gold supply in Q3 was down 5% on year-earlier levels. The biggest contribution to the decrease in supply came from the central bank sector, which went from net sales of 77 tonnes in Q3 2008 to net purchases of 15 tonnes in Q3 2009. An increase in producer de-hedging also made a significant contribution to the lower levels of supply, while increased recycling activity had an upward impact on supply.
- Q3 supply was 8% below the levels of the previous quarter, the main reason being a significant increase in producer de-hedging. Notably, the supply of recycled gold reduced relative to Q2 levels, despite the higher gold price.
- The official sector recorded its second consecutive quarter of net purchases in Q3, although the absolute level of purchases remained small.
And the official outlook by the WGC:
The outlook for Q4 remains mixed. With the gold price having increased further, jewellery sales are likely to continue to struggle with the exception of China, where the outlook remains cautiously positive. There continues to be potential for pockets of buying on dips in the gold price, although it is still unclear where that support will emerge now that the price has moved into a new trading range.
The outlook for investment flows is region specific. In India, Turkey and the Middle East, the price is acting as a deterrent, but in parts of Asia, including China, the rising gold price is seen as a positive factor - consumers like to buy into a rising price. In western countries, demand could ebb slightly further in Q4, but absolute levels of demand are likely to remain well supported by continued economic and currency uncertainty, inflation concerns and the search for diversification.
The central bank sector presents a positive story, with the underlying trend of improvement expected to remain intact. As with private investors, central banks are looking for diversifiers, and in particular, ways of diversifying their dollar exposure.