Sustained investor interest in gold over the course of 2008 helped push dollar demand for the asset to $102 billion, a 29% increase on 2007 levels, according to figures recently published by World Gold Council’s (WGC), Gold Demand Trends publication. Identifiable gold demand in tonnage terms rose 4% on previous year levels to 3,659 t. WGC: “as shares on stock markets around the world lost an estimated $14 trillion in value, identifiable investment demand for gold, which incorporates exchange traded funds (ETFs) and bars and coins, was 64% higher in 2008 than in 2007, equivalent to an additional inflow of $15 billion. Over the year as a whole, the gold price averaged $872, up 25% from $695 in 2007.”
It says that “the most striking trend across the year was the reawakening of investor interest in the holding of physical gold. Demand for bars and coins rose 87% over the year with shortages reported across many parts of the globe.”
The figures, compiled independently for WGC by precious metals consultancy GFMS, showed jewellery demand up 11% in dollar terms at almost $60 billion for the whole year, but down 11% in tonnage terms at 2,138 t. The adverse economic conditions across the globe coupled with a high and volatile price impacted jewellery buying in key markets. WGC indicated however that “strong buying when the market offered attractive price points” shows the underlying demand for gold jewellery.
Industrial demand in 2008 was also affected negatively by the global economic situation, down 7% to 430 t from 461 t in 2007. With the electronics sector the main source of industrial demand, reduced consumer spending on items such as laptops and mobile phones had a knock-on effect on gold demand.
Aram Shishmanian, Chief Executive Officer of World Gold Council, said: “These figures confirm that investors around the world recognise the benefits of holding gold during this time of unprecedented global financial crisis, recession and the spectre of future inflation. Gold has again proven its core investment qualities as a store of value, safe haven and portfolio diversifier and this has struck a chord with nervous investors. Whilst current market conditions have impacted consumer spending on jewellery, purchasers in many of the key gold markets understand gold’s intrinsic investment value and continue to buy.
“The economic downturn and uncertainty in the global markets, that has affected us all, is unlikely to abate in the short term. Consequently, I anticipate that gold, as a unique asset class, will continue to play a vital role in providing stability to both household and professional investors around the world.”
Total demand remained very strong in the fourth quarter of 2008, up 26% on the same period last year at 1,036 t or $26.5 billion in value terms. The biggest source of growth in demand for gold in Q4 was investment. Identifiable investment demand reached 399 t, up from 141 t in Q4 2007, a rise of 182%. According to the WGC, “the main source of this increase was net retail investment, which rose 396% from 61 t in Q4 2007 to 304 t in Q4 2008.” One of the most dramatic surges was in Europe, where bar and coin demand increased from just 9 t in Q4 2007 to 114 t in Q4 2008. ETF holdings broke new records during the quarter. Although the net quarterly inflow was down on the levels of the previous quarter, the growth rate on Q4 2007 was a strong 18%.
Total demand in India in the fourth quarter was up 84% in tonnage terms, led by a 107% rise in jewellery demand, underpinned by investment attributes of gold. This has to be set against a very weak Q4 2007, however. Total gold demand in greater China in Q4 was resilient to the global turmoil. Total offtake was up 21% on the same period last year, with investment the main contributor to growth but jewellery demand also holding up well.
Investment demand in Thailand soared during Q4, from a net outflow of 8 t in Q4 2007 to a net inflow of 21 t in the same quarter of 2008. As with many other parts of the region, this turnaround was underpinned by safe haven buying. Demand in the Middle East in Q4 was up 1% on year earlier levels, with the strong growth in the bar and coin market (up 139%) offset by 7% decline in jewellery demand, which makes up 90% of the market in this region. A combination of gold price volatility, a sharp fall in the local currency and exchange rate uncertainty led to a 59% fall in overall gold demand in Turkey during the fourth quarter.
In the United States, the deteriorating economic conditions produced a mix result for gold demand. Fourth quarter jewellery demand was down 35% as consumer spending plummeted. In stark contrast demand for gold bars and coins rocketed by 370% in Q4, representing 35 t of gold.
Gold supply in Q4 was up 5% relative to year-earlier levels and year-on-year, declined 1%. Slightly lower mine production, higher levels of scrap and lower levels of gold producer de-hedging, were partly offset by lower net central bank sales in Q4 2008, which totalled 71 t, down from 97 t in Q4 2007.