World Gold Council Releases Third Quarter Gold Market Outlook

The WGC has released its complete Third Quarter gold market outlook. To summarize: major demand is seen out of China and India, whose surging populations will buy ever more PM due to "rising income levels, high savings rates and strong economic growth." Demand is seen coming from the jewelry sector, as well as from institutions, including central banks, and a jump in industrial demand "on the back of renewed growth in the electronics industry, due to the majority of semi-conductors being wired by gold." Nonetheless, even as demand continues growing, supply is rising as well: "On the supply side, we reiterate our projection that total mine supply is likely to trend higher. This is due to mine project expansions, a ramping up of production to meet the recovery in gold demand and the diminishing scope for producer de-hedging in 2010. Higher supply is also expected to come from China, Australia and US, although this  may be partially offset by lower output from countries such as South Africa and Peru due to declining ore grades and rising costs." Ultimately, the only important question is whether QE will ever end. Anything less than a Yes answer, means there is virtually no upside limit to gold, absent an occasional correction.

From the report:

Outlook

  • Increasing demand by the world’s two largest markets, India and China, as rising income levels, high savings rates and strong economic growth continue to push up consumption.
  • Gold jewellery demand is likely to exceed that of 2009 due to an anticipated recovery in India, the most significant gold jewellery market, and continuing strength in China. While jewellery demand may face challenges ahead, the latest figures show that demand in key markets has shown resilience in the face of higher prices levels.
  • Concern over fiscal imbalances and currency tensions will continue to support investment demand for gold. Aside from the recent additional US$600 billion of quantitative easing by the US, the weakening of the US dollar and associated fears of inflation, demand is also likely to be driven by higher gold price expectations, as well as increasing availability and accessibility of gold investment products to retail investors.
  • Industrial demand, which has returned to long-term levels, is expected to remain firm on the back of renewed growth in the electronics industry, due to the majority of semi-conductors being wired by gold.

Key demand statistics:

  • Total gold demand was 922 tonnes, an increase of 12% from Q3 2009. In US$ value terms, demand grew 43% to US$36.4 billion over the same period.
  • Demand for gold jewellery increased by 8% from Q3 2009, with four of the best performing markets - India, China, Russia and Turkey - accounting for 63% of global demand. In value terms, global demand for the 12 month period ending September 2010 hit a record US$137.5 billion.
  • Retail investment rose 25% from Q3 2009 to 243 tonnes. The largest contribution to total demand growth came from bar hoarding, which increased 44% from the previous year. The total value of net retail investments during the quarter was a record $9.6 billion, representing a 60% increase from Q3 2009.
  • Total gold ETF demand fell by 7% from Q3 2009 to 39 tonnes. Following a remarkable surge in the previous quarter, which was supported by heightened sovereign risk and currency worries, this quieter period for ETFs reflects consolidation in the market, as it contemplated the prospect of QE2.
  • Industrial demand has recovered back to pre-crisis levels of 110 tonnes, reflecting an increase of 13% from Q3 2009. This recovery was driven by improving demand for consumer electronics goods globally, in particular from emerging markets such as China and India, as well as an increased range of new technology products with gold components.

Full report (pdf)