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World Gold Council Releases Q4 And 2009 Gold Demand Trends Report

Tyler Durden
Zero Hedge
Tuesday, February 23rd, 2010

After releasing its Gold Investment Digest last week, which is merely a summary piece of prevailing observations, the World Gold Council today released its much more detailed Q4 and 2009 Gold Demand Trends report (somewhat of a misnomer as it also has an extended supply discussion). The report’s summary disclosure: “The volume of total identifiable gold demand during 2009 was down 11% on 2008 levels at 3,385.8 tonnes. In $US value terms, the two years were broadly on par. Tonnage demand in Q4 was down 24% on Q4 2008, equivalent to a 5% rise in $US value terms. If we add the less visible side of investment, total tonnage demand in 2009 enjoyed an 11% rise over 2008 levels.” Bottom line – despite materially higher YoY prices, adjusted demand for gold increased over 2008. Surely the Tim Geithener/Ben Bernanke duo can sympathize with this phenomenon.

More summary observations:

  • The $US gold price in 2009, at an average of $972.35/oz, was up 12% on $871.96 in 2008. In Q4, the gold price averaged $1,099.63, up a very strong 38% on the levels of Q4 2008. Consumers in India and Turkey experienced slightly smaller increases of 32% and 34% respectively, while consumers in the Euro area experienced a considerably smaller 23% rise.
  • Identifiable investment in 2009 was up 7% relative to 2008, the only sector on the demand side to record positive growth. Industrial and dental and jewellery demand recorded declines of 16% and 20% respectively. China was the only major jewellery market to record annual growth in tonnage.
  • A comparison of Q4 2009 demand against Q4 2008 shows that the only sector to enjoy positive growth was industrial and dental demand (11%), albeit off a low base. Jewellery demand declined 8%, also off a low base, while identifiable investment declined 50% relative to an exceptionally strong Q4 2008. Q1 2009 was also exceptionally strong; although investment flows subsequently tapered significantly, they remained high in absolute terms.
  • After a very weak Q1, jewellery and industrial demand enjoyed three consecutive quarter-on-quarter gains. By Q4, jewellery demand had risen to 500.4 tonnes, up from 336.3 tonnes in Q1. The recovery in jewellery demand was driven largely by a rebound in the Indian market. Industrial demand benefited from a strengthening in the electronics sector, reflecting improved economic conditions.
  • Strong investment flows in western markets generally offset weakness in non-western markets during 2009. The only non-western country to record positive growth in net retail investment during 2009 was China. India was the largest contributor on the downside, influenced strongly by dishoarding in the first quarter, although this was followed by a subsequent rebound. The strongest quarter-on-quarter performance came from the US, rising 104%.
  • Other identified retail investment, which largely covers the western markets, rose 11% between 2008 and 2009 and 77% quarter-on-quarter.
  • Bar hoarding, which largely covers the non-western markets, experienced a significant decline in both annual terms and in Q4 relative to Q4 2008.
  • ETF demand in 2009, at 594.7 tonnes, was 85% higher than in 2008. The strong 2009 result was driven by an exceptional first quarter, which soared to 465.1 tonnes. Demand in Q4 2009 was significantly lower than in either Q4 2008 or Q1 2009, but still healthy in absolute terms at 31.6 tonnes.

The Council’s Outlook:

Regardless of whether the economic recovery gathers momentum or stumbles in 2010, we believe that western investment demand will remain well underpinned. If the global economy falters, then western investors will continue to look towards gold for its  diversification and portfolio insurance properties. Conversely, if the economic recovery becomes more firmly entrenched, then inflation concerns are likely to continue to gain prominence. However, the outlook for non-western demand remains price dependent.

While industrial and jewellery demand are expected to strengthen in an environment where economic conditions are improving, this recovery is likely to be relatively gradual. Western jewellery markets are likely to be constrained by high levels of unemployment, while in nonwestern markets, the limiting factor is budget constraints as incomes have not kept up with the rise in the gold price. Nevertheless, any significant dips in the gold price are expected to be well supported.

Conditions on the supply side are also generally price supportive. While the levels of de-hedging activity that prevailed in the second half of 2009 are unlikely to continue into 2010, the official sector is likely to be a continued source of support for the gold price.

Demand by Country

And the question on everyone’s mind: China

Greater China

Gold demand in the fourth quarter followed the pattern that had been established across the Greater China region throughout 2009 – namely, solid gains from mainland China partially offset by weaker demand in both Hong Kong and Taiwan. Total Q4 demand of 116.3 tonnes, although below the previous quarter’s strong result, was 3% above Q4 2008 levels. Retail investment demand added 17% to year-earlier levels, while jewellery demand was flat over the same time period.

At 461.9 tonnes, total annual consumer demand for gold in the Greater China region in 2009 was 7% above 2008 levels (an increase of 30.3 tonnes). The main driver of this increase was the investment component of demand, which recorded a rise of 18%. A 5% rise in jewellery demand over the same period was nevertheless very impressive compared with a global decline of 20%.

In mainland China, a 20% rise in investment demand was the driving force behind a 5% increase in total fourth quarter demand relative to Q4 2008, while gains in jewellery demand were more muted at 2%. Mainland China’s full-year record was equally impressive, with a 6% rise in jewellery demand (the only country to experience an improvement in annual jewellery off-take) and 22% growth in net retail investment translating to an increase in total consumer demand of 9% over 2008.

Gold jewellery off-take stagnated during the opening weeks of the fourth quarter. Consumers were faced with record high prices and retailers were cautious in replenishing their stocks following the strong sales in the lead up to the 1st October National Day holiday.
However, demand rebounded strongly in December as the gold price corrected from record highs. This price dip was timely, coinciding  with the approach of the peak New Year gifting season. Further support for jewellery demand came from wedding-related purchases. There is a traditional belief that the forthcoming ‘Year of the Tiger‘ is a ‘Widow Year’ and anecdotal evidence suggests that there was a trend for people to marry in December or January, rather than in February once the New Year has begun. The end result was that Q4 jewellery demand reached 86.5 tonnes, a 2% gain over Q4 2008 with a local currency value equivalent of RMB20.9bn.

Net retail investment responded positively to the environment of high gold prices and concerns over inflationary pressures. Demand for physical gold investment products enjoyed robust momentum through the quarter, with both commercial banks and bullion houses reporting solid demand. Although fourth quarter  demand was unable to match the record levels of Q3, the comparison with year-earlier levels shows a substantial 20% gain. This translates into an increase in annual investment demand of 22% to 80.5 tonnes, with the result that China was the largest non-western investment market for gold in 2009 and the only non-western country to witness an improvement in retail investment demand.

In the absence of sharp fluctuations in the gold price, demand is likely to remain firm as we head into 2010, particularly in the run-up to Chinese New Year and Valentine’s Day, both of which represent key buying occasions.

Full WGC report


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