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WGC: 3Q Gold Demand Declines In 'Challenging' Comparison To Strong Year-Ago Period

Thursday November 15, 2012 1:00AM

(Kitco News) - Global gold demand fell 11% year-on-year in the third quarter to 1,084.6 metric tons, the World Gold Council said Thursday in its quarterly demand trends report.

Still, the Gold Council described gold demand as “resilient,” pointing out that the July-September period had a “challenging” year-on-year comparison to record-high buying in the third quarter of 2011. The third-quarter of 2012 was still above the five-year quarterly average of 984.71 tons, the WGC said. Also, demand for the third quarter was up 10% from the second, the WGC added.

In the year-ago third quarter, gold prices ran up to an all-time high on especially strong investor interest during the European debt crisis and political stand-off in the U.S. over raising the federal debt ceiling.

"So the back comparisons are quite challenging in that gold demand was at very strong levels in Q3 of last year,” said Marcus Grubb, managing director for investment at the World Gold Council.

Demand picked up in India, but cooled in China from a year ago due to a slowing of the country’s economy, the WGC said. (See related story).

The council reported a year-on-year drop in bar and coin demand, but a pick-up in holdings by physically backed exchange-traded funds. There were moderate declines in the jewelry and technology sectors. Central banks remained net purchasers, although their fresh buying was down from the year-ago period.

In value terms, global gold demand was 14% lower year-on-year to $57.6 billion, the report said. The average gold price of $1,652 an ounce was down 3% from the record average in the third quarter of 2011.

The World Gold Council is a market-development organization for the gold industry. Data for the report is compiled independently by the consultancy Thomson Reuters GFMS.

Investment demand for exchange-traded funds, bars and coins collectively was 429.9 tons. This was down 16% compared to the same quarter last year, although it was still 23% above the five-year average, the WGC said.

However, Grubb pointed out that this figure excludes over-the-counter activity that tends to be investment by institutions. “That was actually strong in this quarter,” Grubb said. “And when you add in OTC investment, it was a positive figure of 73.6 tons...it means in this quarter, total investment including over-the-counter was up 4%, not down 16%.”

Demand for ETFs, and similar products, was up by 56% from the previous year to 136 tons.

"Year-to-date, they’re up by about 134%,” Grubb said. “So this year is going to turn out to be a very strong year for ETF demand in the U.S. and Europe, where most of these products are listed.”

Bar and coin investment, meanwhile, fell 30% year-on-year to 293.9 tons. “This was largely reflective of a lack of strong inflows in certain (notably Western) markets, rather than the emergence of any strong profit-taking activity,” said the report. Further, the WGC characterized the decline as “anomalous” since the comparison is to an “exceptional” and record quarter of 422.1 tons a year ago. The demand for the 2012 third quarter was still 13% above the five-year average of 260.3 tons.

Global jewelry dipped 2% to 448.8 tons compared to 458.0 in the same quarter of 2011. The ongoing economic slowdown in China crimped buying in the world’s second-largest regional jewelry market, the WGC said. However, demand picked up again in India during the quarter, the WGC said.

Third-quarter global demand for gold in the technology sector was down by 6% year-on-year to 108 tons, the WGC said. Still, the organization characterized this as generally stable, noting that use of gold in electronics has shown steady incremental growth since the fourth quarter of 2011, driven by demand for tablet devices and mobile phones among others.

Central banks remained net buyers during the quarter, accumulating another 97.6 tons. This was down 31% from a year ago period, but Grubb pointed out that the full-year total so far is ahead of 2011.

"Some people would look at it and say it wasn’t great because (purchases by) central banks fell 31% to 97.6 tons of purchasing,” Grubb said. “But in fact, something close to 100 tons of purchasing by central banks is an extremely good quarter if you go back over 15 years. It’s one of the highest numbers ever.”

For the year to date, Grubb said, central-bank buying is 374 metric tons, compared to 343 a year ago.

"We’re still shooting for 450 to 500 tons by the end of the year,” Grubb said. Total central-bank purchases for 2011 came to 456 tons, he said. 

The WGC said that this demand has been right around 100 tons in six of the last seven quarters, a big increase from as recently as 2010.

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By Allen Sykora of Kitco News; asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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