Q3 Gold Demand for Jewelry Hits $18 Billion

Jewelry buyers returned to the market in droves on a lower gold price in the third quarter of 2008, the World Gold Council said Wednesday.

Meanwhile, dollar demand for the precious metal reached an all time quarterly record of $32 billion as investors around the world sought refuge from the global financial meltdown according to WGC’s Gold Demand Trends. This figure was 45 percent higher than the previous record in the second quarter of 2008.Tonnage demand was also 18 percent higher than a year earlier.

Jewelry Demand
The third quarter saw a record $18 billion of consumer demand for gold jewelry with buyers returning to the market on lower price points, around and below $800. The biggest contributor to the positive trend was India which witnessed a rise of 65 percent in value, or 40 tons, relative to the prior year’s levels, with the Middle East, Indonesia, and China all enjoying rises of more than 40 percent in value or 10 percent in tonnage.

There were however, strong declines in Western markets with the U.S. down 9 percent in value and 29 percent in tons, and the U.K. down 5 percent in value and 26 percent in tons due to the overall decline in the retail market.

Despite a deteriorating global and domestic economic climate, demand in India, the largest market for gold demand, recovered during the third quarter, encouraged by lower gold prices, a good monsoon, and the onset of the festive season. At 250 tons, total consumer demand was 31 percent higher than third quarter levels. In value terms, demand hit the record quarterly sum of $5 billion.

Demand in Greater China rose 18 percent to 109 tons, with the majority of this increase attributable to a strong rise in demand in mainland China (more than 16 tons).

Jewelry demand in the Middle East, which accounts for more than 90 percent of total consumer off-take in the region, rebounded in the third quarter with tonnage demand up 15 percent on and up 47 percent in dollar terms, hitting a new record of $2.8 billion. Retail investment demand, while relatively small in size at 7 tons, recorded strong growth of 23 percent, and 57 percent in dollar terms. In Turkey total third quarter off-take, at 99 tons, was up 15 percent on the levels of a year earlier, with investment demand smashing all previous records to reach 31.7 tons. 

Investment Demand
Identifiable investment demand—which incorporates demand for gold through exchange traded funds, bars, and coins—was the biggest contributor to overall demand during the quarter, up to $10.7 billion (382 tons), double the prior year’s levels.

The figures, compiled independently for WGC by GFMS Ltd., show retail investment demand rose 121 percent to 232 tons in the third quarter, with strong bar and coin buying reported in Swiss, German, and U.S. markets.

The quarter also witnessed widespread reports of gold shortages among bullion dealers across the globe, as investors searched for a haven, WGC said. Overall, the third quarter saw Europe reach an all time record 51 tons of bar and coin buying and France became a net investor in gold for the first time since the early 1980s.

Gold ETFs enjoyed a record quarterly inflow of 150 tons in the quarter, boosted by extreme levels of economic and financial uncertainty, WGC said. The peak in inflows occurred in late September, triggered by the collapse of Lehman Brothers and a fear of banking sector failures. Net inflows surged by an unprecedented 111 tons during five consecutive trading days, equivalent to $7 billion.

As the financial crisis deepened these increases in identifiable investment demand were offset by outflows in “inferred investment.” This was characterised by hedge funds liquidating investment positions in gold as they were forced to raise cash and by institutions liquidating commodity index investments, including gold, as fears of recession deepened, WGC said.

“The trend largely reflects gold’s better performance relative to other assets and also explains why the gold price did not perform better during the quarter in the face of very strong demand,” WGC said in a statement.

“Gold’s universal role as a store of value has shone through during this quarter helping attract investors and consumers to all forms of gold ownership,” said James E. Burton, WGC chief executive officer. “The rise in demand for gold bars and coins has been impressive as has the record rise in gold ETF inflows. Perhaps most encouraging is the return to positive jewellery buying which has been absent for several quarters due to the high levels of price volatility.

“Looking forward, given the uncertainty that surrounds the global economy, gold’s safe haven appeal should continue, but so too will the possibility of heightened levels of activity in the speculative side of the gold market, therefore it is too soon to call an end to market volatility.” 

Industrial and dental demand declined to 104 tons during the quarter 11 percent down on year-earlier levels. Electronics, the largest component of industrial demand, was hampered by the downturn in the global economy and a lack of confidence within world markets. 

Gold supply was down 9.7 percent on year-earlier levels, largely driven by a significant reduction in central bank sales. For the year to September, sales totalled a provisional 357 tons, the lowest level of annual sales since the first Central Bank Gold Agreement was signed in 1999, WGC said.