Gold Demand Spikes as Markets Run Scared

The World Gold Council reports that gold demand jumped in the third quarter. The buying did not push prices to record levels regularly during that period. That price moderation probably caused demand to rise in nearly every sector, including gold used for investment, business and jewelry.

The agency reported that:

Gold demand in the third quarter of 2011 reached 1,053.9 tonnes, an increase of 6% compared to the same period last year. This equates to US$57.7bn, an all-time high in value terms. According to the World Gold Council’s Gold Demand Trends report for Q3 2011 released today, this increase was driven by investment demand which rose by 33% year-on-year to 468.1 tonnes, generating record quarterly demand of US$25.6bn.

The so-called smart money, government banks, sharply increased gold purchases:

Central bank net purchases amounted to 148.4 tonnes, as they continued to increase their allocation to gold as a percentage of total reserves.

Perhaps the economists for these banks see something that other investors are less certain about. The risk of markets in the eurozone may be so severe that governments want to hedge for events they will not discuss in public for fear of making concerns worse.

Gold demand, if it is a barometer of what experts expect in the capital markets, has signaled that the sovereign debt crisis likely will not be resolved. At least that is what central banks have decided.

Douglas A. McIntyre