Total identifiable gold demand fell 34% year-over-year [yoy] in the third quarter, according to the latest Gold Demand Trends publication from the World Gold Council. The decline was partly due to the third quarter of 2008 having been a strong period for gold demand, in response to the extreme uncertainty that surrounded the global economy during the deepening of the financial crisis.
But despite a yoy contraction in physical demand, speculation in gold futures and expectations for more sector bullion buying are keeping prices elevated. What’s more interesting in relation to the yoy contraction is that total gold demand in Q3’09 reached 800.3 tonnes, or $24.7 billion in dollar terms, up 15% from the second quarter, as gold’s long-term wealth preservation qualities continued to attract investors and consumers. Clearly, the underlying demand, which still remains resilient, continues to experience bursts of strong bargain hunting buying when prices dip. In addition, the expectation for longer-term bullishness in overseas markets continues to gain momentum amid fears that inflation will become a major concern because of massive liquidity in global financial markets.
[Reuters] “For most of last year, the buying was very physical,” says GC’s investment research manager Rozanna Wozniak.”(Now), it seems to be more financial market-driven, by some of those other less visible instruments — derivatives, futures, over-the-counter transactions.”
“In terms of why it is happening, we have had some good news coming out from the central bank sector, as well as the fall in the U.S. dollar,” she said. “That says something about potential future demand.”
While Q3’09 exchange traded funds (ETF) and inferred investment fell slightly quarter on quarter, jewelery, industrial and retail investment demand, notes the report, recorded improvements, demonstrating the unique diversity of demand drivers that support the gold price.
Here are some of the details (table below), taken from the World Gold Council’s Q3 update, which show a summary of gold demand.