The figures, compiled independently for WGC by GFMS Limited, show retail investment demand rose 121 percent to 232 tonnes in Q3, with strong bar and coin buying reported in Swiss, German and US markets. The quarter also witnessed widespread reports of gold shortages among bullion dealers across the globe, as investors searched for a safe haven. During the quarter, Europe reached an all-time record 51 tonnes 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 tonnes in Q3, boosted by extreme levels of economic and financial uncertainty. 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 tonnes during five consecutive trading days, equivalent to US$7bn.
As the financial crisis deepened, increases in identifiable investment demand were offset by outflows in "inferred investment". With recessionary fears looming, hedge funds liquidated investment positions in gold as they were forced to raise cash, and institutions liquidated commodity index investments, including gold. 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.
Q3 saw a record US$18bn of consumer demand for gold jewelry with buyers returning to the market on lower price points, around and below US$800, demonstrating the underlying positive sentiment toward gold and its recognition as a store of value. The biggest contributor to the positive trend was India, which witnessed a rise of 65 percent in US dollar value or 40 tonnes relative to previous year levels. The Middle East, Indonesia and China all enjoyed rises of more than 40 percent in value or 10 percent in tonnage. There were however, strong declines in Western markets with the US down 9 percent in value and 29 percent in tonnes, and the UK down 5 percent in value and 26 percent in tonnes due to the overall decline in the retail market.
James E. Burton, Chief Executive Officer of World Gold Council, commented:
"Gold's universal role as a store of value and safe haven helped attract investors and consumers to all forms of gold ownership during the quarter. 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 jewelry 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."
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 tonnes, total consumer demand was 31 percent higher than Q3 2007 levels. In value terms, demand hit the record quarterly sum of US$5bn.
Demand in Greater China rose 18 percent to 109 tonnes, with the majority of this increase attributable to a strong rise in demand in mainland China (+16 tonnes).
Jewelry demand in the Middle East, which accounts for more than 90 percent of total consumer off-take in the region, rebounded in Q3 with tonnage demand up 15 percent on Q3 2007 and up 47 percent in dollar terms, hitting a new record of US$2.8bn. Retail investment demand, while relatively small in size at 7 tonnes, recorded strong growth of 23 percent, and 57 percent in dollar terms. In Turkey total Q3 off-take, at 99 tonnes, was up 15 percent on the levels of a year earlier, with investment demand smashing all previous records to reach 31.7 tonnes.
Industrial and dental demand declined to 104 tonnes during the quarter, down 11 percent 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% on year-earlier levels, largely driven by a significant reduction in central bank sales. Sales under the Central Bank Gold Agreement (CBGA) totaled a provisional 357 tonnes in the CBGA year ending September 26, the lowest annual figure since the first Agreement was signed in 1999.
