Gold demand fell 34% in the third quarter from a year ago, thanks to the very high demand in the 2008 period.
That’s when the failures of Lehman Brothers and other banking crises saw investors head for gold as a hedge or protection.
A year on and demand has slowed from the year ago period, but rose on the second quarter as conditions in financial markets calmed down and there was less angst about whether major banks would fail.
The World Gold Council said that total identifiable gold demand for the third quarter 2009 rose 15%, to 800.3 tonnes, or US$24.7 billion from the second quarter, "as gold’s long-term store of value and wealth preservation qualities continued to attract investors and consumers".
"Jewellery and investment demand in non-western markets rebound from the very low levels seen in the first quarter, while industrial demand started to recover in response to an improvement in economic conditions," it said in its first report on third quarter demand and supply..
"The 34% drop on year earlier levels was "due to an exceptionally strong Q3’08, which saw soaring demand in response to the deepening global financial crisis and as many non-western markets responded to a dip in the gold price in that quarter."
To address this, WGC compared Q3’09 against the five year Q3 demand average to 2007, which showed tonnage down just 4% on this basis.
The council said that "While Q3’09 exchange traded funds (ETF) and inferred investment fell slightly quarter on quarter, jewellery, industrial and retail investment demand recorded improvements, demonstrating the unique diversity of demand drivers that support the gold price".
A 200-tonne gold purchase by India’s central bank pushed gold prices sharply higher in early November.
Prices hit a record above $US1,166 an ounce on Monday and remained around that level Tuesday, as momentum buying pushed prices through key technical resistance levels.
But despite the improvement on the second quarter, the WGC figures show the high prices are impacting demand.
Industrial consumers have "shied away from the metal, even as large investors and central banks bought gold as a portfolio diversifier".
Indian jewellery demand tumbled 42% to 111.6 tonnes in the third quarter from a year earlier, though it rose up from extremely low levels earlier in the year.
Middle East demand saw jewellery buying down 34% at 69 tonnes.
China, which includes China, Hong Kong and Taiwan, saw a 10% rise in overall demand to 128.6 tonnes, while jewellery demand rose 7%.
As financial markets improved, investment demand for gold also fell from the high levels in the third quarter of 2008.
The WGC said retail investment in products such as coins and bars was down 31% year-on-year, while Exchange Traded Funds inflows slumped a nasty 72% to 41.4 tonnes.
Total gold supply eased 5% in the September quarter.
The WGC said that while the $US gold price in Q3 2009 was 10% higher than in Q3 2008, "over the same period the gold price rose 22% in Indian rupee terms, 36% in Turkish lira terms and 27% in pound sterling terms.
"All three sectors of gold demand experienced an increase in tonnage relative to Q2 2009, but a decline relative to Q3 2008. The biggest decline relative to year-earlier levels was in identifiable investment, which fell 46%.
"Using the five year average benchmark described earlier, investment recorded a 73% rise.
"Bar hoarding, which largely covers the non-western markets, improved 41% quarter-on-quarter to 81.2 tonnes.
"In contrast, other identified retail investment, which largely covers the western markets, eased 6% to 43.1 tonnes – however, the absolute level of investment remained very healthy on a historical basis.
"Industrial demand recorded its second consecutive quarter-on-quarter improvement, and the magnitude of the decline relative to year earlier levels, at 11%, was almost half the decline recorded in Q2.
"The electronics sector was the main source of improvement."
Mine production rose, but a drop of sales from central banks — which turned net buyers of gold in the quarter — and producer dehedging reduced the amount of metal available to the market.
Central banks bought 15 tonnes of gold in the third quarter, their second straight quarter as buyers. In the third quarter of last year, they sold 13 tonnes of gold, the WGC said.
Supply of recycled gold to the market rose 31% to 283 tonnes, but was still significantly down on the 569 tonnes it hit in the first quarter of 2009 as prices powered through $US1, 000 an ounce.
Gold production in South Africa, the world’s second biggest producer after China, registered an increase between the second and third quarters of 2009.
Statistics from the country’s Chamber of Mines show that output rose 5% from 51,634 kilograms in the second quarter to 54,110kg in the following three-month period.
Production by members of the Chamber of Mines saw a rise of 3.4% to 44,140kg between the two quarters.
However, overall South African gold output fell 2.9% year-on-year, while production by member firms also dropped by 3.9% on an annual basis.
