DEMAND FOR gold sank to a 5½-year low in the second quarter of 2009, with jewellery-buying weakened by global economic recession.
“The global economic downturn has had a major impact on the purchasing power of gold consumers, as have high local prices and dollar volatility,” said Aram Shishmanian, chief executive of the World Gold Council, which yesterday released its Gold Demand Trends report for the second quarter.
Total identifiable gold demand, at 719.5 tonnes, was down 8.6 per cent compared with the same quarter of 2008, with jewellery consumption down 22 per cent at 404.1 tonnes.
Investment demand (buying of bars and coins and inflows into exchange-traded funds) reached 222.4 tonnes in the second quarter, up 46.4 per cent from the same period a year ago.
However, the second quarter was the weakest three-month period for investment demand since the implosion of Lehman Brothers in September 2008.
Inflows into gold exchange-traded products reached 56.7 tonnes in the second quarter, up 1,317.5 per cent from the same period in 2008, but down 87.8 per cent from 465.1 tonnes in the first quarter.
The extraordinary rush by investors for the safety of physical gold after the collapse of Lehman Brothers declined.
Coin-buying by western retail investors, at 38.7 tonnes in the second quarter, remained substantially above its historic average, but was well down on the record 137.9 tonnes and 92.7 tonnes acquired in the fourth quarter of last year and first quarter of 2009 respectively.
In the jewellery market, high local prices in India, the world’s largest jewellery market, weighed on demand, which fell 31 per cent to 88 tonnes, while demand in Turkey dropped 54 per cent to 19.2 tonnes.
Japan’s jewellery market was one of the weakest performers, with demand dropping 29 per cent, but there were also big falls in Thailand (down 30 per cent), Indonesia (down 21 per cent) and Vietnam (down 17 per cent).
Suki Cooper of Barclays said that although jewellery demand historically had provided a floor for prices, consumption had been hit by factors including high and volatile prices, economic recession and concerns that India’s monsoon would affect rural incomes.
But China’s gold market exhibited a “unique resilience”, according to the World Gold Council, with jewellery demand up 6 per cent.
Rozanna Wozniak, the council’s investment research manager, said that most Chinese consumers were still accumulating gold, and low levels of ownership reflected a long period of government price and import controls.
“In the unlikely event that the global financial and economic crisis abates in the short term, then investment demand would be expected to fall,” Mark O’Byrne, managing director of brokerage GoldCore in Dublin, said. “An improvement in the global economy and consumer spending would likely see a resumption of jewellery demand.”
Gold traded at $934.30 a troy ounce yesterday, down 0.3 per cent. It has risen 6.4 per cent this year, but remains 9.4 per cent below the record $1,030.80 reached in March 2008.
“Clearly demand is being hurt by high prices and globally weaker economic conditions,” said John Meyer of Fairfax. “We expect prices to remain at elevated levels, but are cautious on gold’s potential to go past the $1,000 an ounce level any time soon.” – (Copyright The Financial Times Limited 2009)
