Global gold demand rises as India, China buy

Global gold demand rises as India, China buy

Londone: Gold demand is being lifted this year by a recovery in jewellery buying in the key Indian market, and robust growth in Chinese gold consumption, the World Gold Council said on Wednesday.

Releasing its third-quarter Gold Demand Trends report, which showed a 12% year-on-year rise in gold demand in the third quarter, the WGC said jewellery consumption in particular looked set to improve on last year’s level.

“The main drivers for this year are the impact of the Indian and Chinese markets," said the WGC’s research manager Eily Ong. “In 2010 in total, jewellery demand could actually exceed that of 2009."

Concerns over the global economic outlook and currency market stability have supported investment in gold this year, helping it to a record $1,424.10 an ounce last week. But identifiable investment levels are below 2009’s stellar levels.

Investment demand almost halved in the third quarter from the previous three months, during which concerns over euro zone sovereign debt levels fuelled a surge in investment in bullion.

But Ong said jitters remain in the wider financial markets, caused by measures such as the United States’ quantitative easing policy announced earlier this month, could still lead to another jump in investment.

“If there is continuing uncertainty over the impact of QE2 and uncertainty over what is happening with the Asian market — whether they will continue to tighten policy, or whether whatever they are doing now will succeed in curbing inflation — we could probably see what we saw in Q2 again," said Ong.

“There could be more investors allocating their assets into gold as a store of value, and for capital preservation."

Demand for investment products such as gold exchange-traded funds softened in the third quarter. ETF demand was down 7% year-on-year to 38.7 tonnes, less than a seventh of the “exceptional" flows seen in the second quarter.

India buys

But other forms of demand rose. Jewellery buying climbed 8 percent to 529.8 tonnes in the last quarter, accounting for 57% of total demand. In the second quarter jewellery buying accounted for just 40% of overall consumption.

India bought nearly 50 tonnes, or 36%, more gold jewellery in the third quarter than in the same period of the previous year, while Greater China lifted its gold consumption by 16%.

“What we see is that in the largest part of gold demand, which is jewellery, a sector that is always sensitive to high gold prices, we continue to see strong appetite," said Ong.

“That is a very good, confident signal to investors that the trend in gold prices is not a bubble."

Dental and industrial demand, for applications such as electronics devices, also rose 13% to 110.2 tonnes. Ong said the sector had now returned to pre-financial crisis levels.

The official sector remained a net buyer of gold for a sixth successive quarter. Central banks were once major suppliers of bullion to the market, but European bank sales have dried up recently, while many Asian banks have been adding to reserves.

“The reason why the official sector, particularly in these key economies in emerging markets, are actually purchasing gold is the same reason institutional investors or high net worth individuals are buying it," said Ong, adding: “Because of its diversification properties, and also gold’s ability to outperform during crises."

On the supply front, mine production was relatively flat, up 3% year-on-year in the third quarter to 702 tonnes. Gold scrap supply climbed 41% year-on-year to 418 tonnes, but was down a touch from the second quarter’s 452 tonnes.