If you have been watching the price of gold in recent months the big assumption would be that global gold demand is through the roof. It isn’t. The World Gold Council (WGC) showed that in the third quarter, gold tonnage demand was down 11% and in value terms the drop was 14%. The big caveat is that the demand trend is compared to the third quarter of 2011 when there was a very large gain which was at record levels.
The new data from the World Gold Council shows that In value terms gold demand was 14.0% lower year on year at $57.6 billion and the average gold price of $1,652/oz was actually down by 3% from the record average Q3 2011 price.
Don’t discount investors. Maybe it was endless quantitative easing bets (hedges) or maybe it was in anticipation of the presidential election. Either way the global investment in ETFs in the third quarter was up a massive 56% over the third quarter of 2011. The WGC said, “Investment demand (the sum of ETFs and total bar and coin demand) was 429.9t, down 16% compared to the same quarter last year, but was 23% above the five year average. Demand for ETFs and similar products in Q3 was up by 56.0% on the previous year to 136.0t.”
Will Rhind, managing director at ETF Securities, told us directly, “Demand for Gold ETFs and coins, bars was more muted in Q3 due the uncertainty surrounding the US presidential election race. A Romney presidency perhaps seen as more negative for gold as it may have led to a leadership change at the Federal Reserve and a more fiscally conservative approach. An Obama re-election was generally seen as positive for gold as it would almost mean a continuation of current administration policy that has already seen gold trade to a nominal all time high of approximately $1900 per ounce.”
As far as how the two key gold ETFs have done, here you are. The ETFS Physical Swiss Gold Shares (NYSEMKT: SGOL) is currently down by 0.7% at $169.14, but this was at $175.29 at the end of September and that is up from $161.06 at the end of the third quarter in 2011 for a gain of 8.8%. The larger SPDR Gold Shares (NYSEMKT: GLD) is down 0.7% at $165.97, but the end of the third quarter price was $171.89 versus $158.06 at the end of the third quarter in 2011 for a gain of 8.7%. The change for the miners ETF via the Market Vectors Gold Miners ETF (NYSEMKT: GDX) was different: Its shares are down 1.8% today at $46.35, but the end of the third quarter price of $53.69 was against a price of $55.03 at the end of the third quarter of 2011. In short, the spot gold ETFs rose by about 8.8% but the go-to gold miner ETF was down by 2.4%.
The World Gold Council gave some very interesting changes for the third quarter of 2011. It seems like India and ETFs may have saved gold, while China, central banks and other demand was down.
India may also actually be recovering as a gold player again. The WGC said that the Indian market is showing signs of recovery with gains of 9% to 223.1 tonnes from 204.8 tonnes in the third quarter of 2011. India’s gain was due to both jewellery and investment demand.
China disappeared as far as the gold growth is concerned due to its weak sentiment and lower growth expectations. Chinese gold demand fell 8% to 176.8 tonnes versus 191.2 tonnes. The demand was down 6% in jewellery and 12% in investment.
Overall central bank demand is slowing as well. The WGC sais that central banks bought 97.6 tonnes in the third quarter. Central bank demand has been around 100 tonnes in six of the last seven quarters. The year to date figure for central bank buying is up 9% according to the WGC.
Here are the three big statistics:
- Third quarter gold demand of 1,084.6 tonnes was down 11.0% from Q3-2011.
- The value measure of gold demand was 14.0% lower at $57.6 billion from Q3-2011.
- The average gold price of $1,652/oz was down 3% from the record average prices in Q3-2011.
JON C. OGG