The credit crunch and recession has hammered demand for gold jewellery to the point where demand is now running at a 20 year low.
A combination of the sharp price rise generated by the credit crisis and then the downturn in demand from the global slowdown, the first synchonised slide since The Depression, has also seen the recycling of scrap gold hit record levels.
That price pressure is continuing at the moment: it hit $US953 overnight, not as high as the record of more than $1,000 last year, but the highest since March.
That upward price pressure in the first quarter forced up gold supply by 34%, powered by a 55% surge in the amount of gold coming from scrap and recycling of existing gold jewellery and from industry. Mine production was only up 3% in the quarter.
But demand was up 38% in the quarter, driven by increases from investors, especially Exchange Traded Funds.
The major moves are disclosed in the March quarter gold report from the World Gold Council.
They continue the trends observed in the back half of 2008, especially for jewellery.
With demand from the jewellery sector down, it was the explosion from Exchange Traded Funds which mopped up the jump in supplies which would have normally depressed prices.
ETF investment accounted for nearly 80% of total investment demand in the first quarter, surpassing bars and coins to become the most important tool for gold investors. It accounted for 45% of total gold demand.
But the major concern for the industry was the way demand for gold jewellery from India, the biggest market, plunged in the March quarter.
There was significant profit taking in some countries ("dishoarding" is the term), especially in places like India (But not China).
Demand from industry (and dental) also fell as demand for computer and IT and consumer products like laptops and mobile phones fell.
“Recycling of gold became a global phenomenon in the first quarter of this year,” said Rozanna Wozniak, investment research manager of the World Gold Council:
“The wave of recycling activity clearly shows that used jewellery is not a ‘waste’ product,” she said in a statement accompanying the report.
Jewellery demand fell by 24% compared with the same period in 2008 to 339.4 tonnes as demand fell from most countries. The countries to record positive growth were China and Hong Kong.
"By far the greatest contribution to the decline in global jewellery demand came from India, where demand fell by 52% from Q1 2008, which itself had been a relatively weak quarter.
"In local currency terms, the decline was 42%.
"Traditionally the largest market for jewellery, Indian demand was eclipsed by China as demand dried up, with consumers generally choosing to exchange or sell old jewellery rather than make fresh purchases."
Outside China and Hong Kong the WGC said demand in Asia was down.
"All other markets within the Asian region underwent a drop in jewellery demand as consumers reacted to the twin effects of the high gold price: prohibiting new demand and providing an opportunity for profit-taking.
"Demand in Thailand suffered the largest decline (-40%) while Japan proved to be the most resilient market (-10%)."
But this was outweighed by massive inflows and demand from financial investors.
Inflows into gold exchange-traded funds reached 465.1 tonnes in the first quarter, up 540% on the same period last year.
The council said this marked a change on the second half of 2008, when bar and coin demand was the biggest driver of investment.
This helped push total gold demand up 38% to 1,015.5 tonnes in the first quarter of 2009 compared with the same period in 2008.
The WGC said "Tonnage gold demand in the first quarter of 2009 was up a strong 38% on the levels of a year earlier.
"In $US value terms, this represented a 36% rise to $29.7bn.
"Global economic conditions continued to take their toll on jewellery and industrial demand while underpinning safe haven demand from investors," the council said.
"The gold price averaged $US908.41 during Q1, down 2% on the Q1 2008 average.
"However, this relatively flat result in $US terms masks significant gains in local currency terms for consumers in several key countries, including India and Turkey.
"The biggest source of growth in demand for gold was investment. Identifiable investment demand reached 595.9 tonnes in Q1, up 248% from 171.3 tonnes in Q1 2008.
"Taking into account inferred investment, which in the first quarter largely reflected investor flows into bullion accounts, total investment off-take reached 711.2 tonnes, up 173% on the levels of a year earlier," the Council said this week.
"Industrial demand also suffered under the pressure of extremely weak economic conditions.
Demand was 31% lower than year-earlier levels, with the electronics sector the main contributor to this decline."
Nevertheless, bar and coin demand remained extremely strong during Q1.
Retail buying of coins and bars in North America and western Europe reached 89 tonnes in the first quarter, down from 138.1 tonnes in the fourth quarter of 2008 when concerns about the danger of a worldwide systemic financial crisis were at their peak. That was still 804% above the same period in 2008.
Net retail investment totalled 130.8 tonnes, up 33% on the levels of Q1 2008.
These flows largely represented the balance of dishoarding in non-western markets and large posi
