Deteriorating economic conditions in the United States produced mix results for gold demand, according to the World Gold Council’s Gold Demand Trends. Fourth quarter jewelry demand was down 35 percent as consumer spending plummeted. In stark contrast, demand for gold bars and coins rocketed by 370 percent in the fourth quarter, representing 35 tons of gold.
Worldwide jewelry demand was up 11 percent in dollar terms at almost $60 billion for the 2008, but down 11 percent in tonnage terms at 2,138 tons, WGC said. “The adverse economic conditions across the globe coupled with a high and volatile price impacted jewelry buying in key markets, but resilient spending on gold jewelry indicates the strength of underlying demand, indicated by strong buying when the market offered attractive price points.”
2008 investment demand
The figures compiled independently for WGC by GFMS Ltd., showed that sustained investor interest in gold over the course of 2008 against a backdrop of the worst year on record for global stock markets and many other asset classes, helped push dollar demand for the safe haven asset to $102 billion, a 29 percent increase on year earlier levels, the WGC said. Identifiable gold demand in tonnage terms rose 4 percent on previous year levels to 3,569 tons.
As shares on stock markets around the world lost an estimated $14 trillion in value, identifiable investment demand for gold, which incorporates exchange traded funds and bars and coins, was 64 percent higher in 2008 than in 2007, equivalent to an additional inflow of $15 billion, the WGC said. Over the year as a whole, the gold price averaged $872, up 25 percent from $695 in 2007.
“The most striking trend across the year was the reawakening of investor interest in the holding of physical gold,” WGC said. “Demand for bars and coins rose 87 percent over the year with shortages reported across many parts of the globe.”
Industrial demand in 2008 was another casualty of the global economic turmoil down 7 percent to 430 tons from 461 tons in 2007. With the electronics sector the main source of industrial demand, reduced consumer spending on items such as laptops and mobile phones had a knock-on effect on gold demand.
“These figures confirm that investors around the world recognize the benefits of holding gold during this time of unprecedented global financial crisis, recession, and the specter of future inflation,” said Aram Shishmanian, the new WGC chief executive officer. “Gold has again proven its core investment qualities as a store of value, safe haven and portfolio diversifier and this has struck a chord with nervous investors.
“Whilst current market conditions have impacted consumer spending on jewelry, purchasers in many of the key gold markets understand gold’s intrinsic investment value and continue to buy.
“The economic downturn and uncertainty in the global markets, that has affected us all, is unlikely to abate in the short term. Consequently, I anticipate that gold, as a unique asset class, will continue to play a vital role in providing stability to both household and professional investors around the world.”
Total demand remained “very strong” in the fourth quarter of 2008, WGC said, up 26 percent on the same period last year at 1,036 tons or $26.5 billion in value terms.
Fourth quarter investment demand
The biggest source of growth in demand for gold in the fourth quarter was investment. Identifiable investment demand reached 399 tons, up from 141 tons in the fourth quarter of 2007, a rise of 182 percent. The main source of this increase was net retail investment, which rose 396 percent from 61 tons in the fourth quarter of 2007 to 304 tons in the fourth quarter of 2008. The most dramatic surge was in Europe, where bar and coin demand increased from just 9 tons in the fourth quarter of 2007 to 114 tons in the fourth quarter of 2008, a 1,170 percent increase. ETF holdings broke new records during the quarter. Although the net quarterly inflow was down on the levels of the previous quarter, the growth rate year-over-year was a strong 18 percent.
Demand by region
Total demand in India, the world’s largest gold market, in the fourth quarter was up 84 percent in tonnage terms, led by a very strong 107 percent rise in jewelry demand, underpinned by investment attributes of gold.
“This phenomenon has to be set against a very weak Q4 2007, however,” WGC noted.
Total gold demand in Greater China in the fourth quarter was “resilient” to the global turmoil, WGC said. Total off-take was up 21 percent on the same period last year, with investment the main contributor to growth but jewelry demand also holding up well.
Investment demand in Thailand soared during the quarter, from a net outflow of 8 tons in the fourth quarter of 2007 to a net inflow of 21 tons in the fourth quarter of 2008. As with many other parts of the region, this turnaround was underpinned by safe haven buying.
Demand in the Middle East in the fourth quarter was up 1 percent year-over-year, with the strong growth in the bar and coin market (up 139 percent) offset by 7 percent decline in jewelry demand, which makes up 90 percent of the market in this region. A combination of gold price volatility, a sharp fall in the local currency and exchange rate uncertainty led to a 59 percent fall overall gold demand in Turkey in the fourth quarter.
Gold supply in the fourth quarter was up 5 percent relative to year-earlier levels and the annual supply for 2008 declined 1 percent compared with the prior year, WGC said. Slightly lower mine production, higher levels of scrap, and lower levels of gold producer de-hedging, were partly offset by lower net central bank sales in the fourth quarter of 2008, which totalled 71 tons, down from 97 tons in in the fourth of 2007.