Safe-haven appeal spurs gold demand

DUBAI — A sustained surge in gold’s investment appeal, regardless of its relentless rally, drove demand for the yellow metal by six per cent to a 1-1/4 year high in the third quarter of 2011.

By Issac John

Published: Fri 18 Nov 2011, 11:46 PM

Last updated: Tue 7 Apr 2015, 5:17 AM

The World Gold Council said on Thursday that the rising safe-haven appeal of gold continued to make it a much sought-after asset of investors amid mounting levels of inflation, the US credit rating downgrade, worsening eurozone sovereign debt crisis and the lackluster performance of many risky assets.

Gold demand in the third quarter of 2011 rose to 1,053.9 tonnes up from 991.1 tonnes in the same 2010 period, the WGC said. In value terms, the demand equates to $57.70 billion, an all time high, and up from $44.5 billion in the second quarter.

Year-on-year, gold’s investment demand rose by 33 per cent to 468.1 tonnes, generating record quarterly demand of $25.6 billion, WGC’s Demand Trends report for the third quarter said. For the first time since early 2009, Chinese demand for jewellery surpassed that in India, the world’s largest consumer of bullion. “China’s growing appetite for gold as a means of investment saw demand for gold bars and coins also expand by 24 per cent from year earlier levels to 60.2 tonnes,” WGC said. Strong demand in investment and jewellery is projected to drive China’s total gold demand to 750 tonnes this year.

Jewellery demand in India was sluggish during the seasonally slow months of July and August, compounded by high inflation and greater volatility in the local gold price, the report said. The report said the volatile price of gold, which swung between a high of $1,920.30 and a low of $1,478.00 in the quarter, coupled with a weaker Indian rupee and the inauspicious time of year for bullion buying contributed to the decline.

“Buying has since recovered slightly with the onset of the festive and wedding season. Overall, Indian jewellery demand in third quarter saw a 26 per cent decline in tonnage, when compared to the same quarter in 2010, to 125.3 tonnes, however yearly demand to the end of September is very close to the record levels seen in 2010,” it said.

Global demand for gold jewellery of 465.6 tonnes in the third quarter of 2011 was 10 per cent below year-earlier levels of 518.9 tonnes. In value terms demand reached a quarterly record of $25.5 billion, 24 per cent higher than the third quarter of 2010, which registered $20.5 billion. European purchases of bars and coins more than doubled to 118.1 tonnes in the third quarter, accounting for 30 per cent of total coin and bar demand and making it the single largest source of demand for bullion in this form.

“Unsurprisingly investment demand for gold was a key driver during the third quarter. Increasing levels of inflation, the US credit rating downgrade, a worsening eurozone sovereign debt crisis and the lacklustre performance of many assets drove investors to increase holdings in gold in order to protect their wealth. Given gold’s proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating,” said Marcus Grubb, Managing Director, Investment at the WGC.

“The long-term fundamentals for gold remain strong with a diverse and growing demand base coupled with constrained supply-side activity.”

“If you look at third quarter in bars and coins, Europe was the biggest investment region in the world, which is an interesting result,” said Grubb.

“Gold is not a Western fear investment, it is an Asian wealth accumulation investment,” Grubb said.

Central banks were once again active buyers of gold in the third quarter. The report showed the official sector bought 148.4 tonnes of gold, with Russia, Thailand and Bolivia, among others, contributing to the increase from last year’s 22.6 tonnes.

Grubb said the council estimated that in the year to date, the official sector has bought some 350 tonnes of gold, as central banks in the emerging world particularly seek to diversify their growing foreign exchange reserves in assets other than the US dollar.

Factoring in central bank buys, overall supply of gold rose by two per cent to 1,034 tonnes from 1,013 tonnes in the third quarter of 2010, as mine supply rose five per cent year-on-year to 746.2 tonnes and scrap sales rose 12.5 per cent to 426.5 tonnes, the highest since the final quarter of 2010.

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