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Gold Demand at 2-Year High: Are Bulls Back In Control?

November 2015

November 12, 2015 | 10:15 | Dubai

The global Q3 gold demand rose by 8% year-on-year, reaching a two-year high of 1,120.9 tonnes, according to the latest report by World Gold Council (WGC). Q3 2015 was a period of two distinct halves: ETF outflows contributed to a price dip in July, which boosted consumer demand around the world. Subsequently, a positive shift in institutional investor attitudes led to modest ETF inflows in August and September, which pushed prices back up. Central banks bought another 175.0 tonnes, in recognition of gold’s diversification benefits. And after a long period of growth, the supply of gold from mine production contracted by 1% in the third quarter, WGC said.

Bargain-hunting during the first six weeks of the quarter was most apparent in the bar and coin space, although jewellery demand also benefited. Bar and coin demand shot up to 295.7 tonnes (t). This was the highest level for nearly two years, some 33% above the rather weak Q3 2014 and 46% up on the previous quarter. Similarly, demand for gold jewellery accelerated during what is traditionally a slow time of year for jewellery sales.

A drop in the gold price gave jewellery demand a shot in the arm after the difficult second quarter. Indian consumers, famously price-savvy when it comes to gold, led the charge for jewellery. Demand was up by 15% (+26.9t) compared with Q3 2014. At 211.1t, demand almost equalled the previous peak of 213t from Q3 2008. However, the fourth quarter outlook is more muted, WGC said. After such an exceptional third quarter, it is worth sounding a note of caution for the fourth quarter. Although the Q3 upsurge partially compensated for Q2’s poor turnout, it also ate into ‘normal’ seasonal demand that would take place between September and November. Festival and wedding purchases were brought forward to take advantage of the price dip, therefore demand towards the end of the year is likely to be correspondingly affected. Lingering concerns over the health of the rural Indian economy and local gold prices remaining in close proximity to the Rs 27,000/10g level in recent weeks also give reason to adopt a prudent outlook for the usual fourth quarter uplift in Indian demand.

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