Gold demand rises in 3Q despite high prices

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Gold demand rises in 3Q despite high prices

November 14, 2007

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New York—The ongoing financial crisis directly impacted the global gold market in the third quarter of 2007, with investors rather than jewelry buyers pushing total demand to a new record of $20.7 billion, up 30 percent over the same period last year, according to Gold Demand Trends, released today by the World Gold Council (WGC).

The figures, compiled independently for the WGC by GFMS Ltd., showed that global gold jewelry demand was also strong in the third quarter, but was heavily impacted in key markets in September due to steep price hikes. All the same, global gold jewelry demand increased by 6 percent in tonnage terms and by 16 percent in dollar terms over the same period last year.

"It is clear that gold's safe haven and hedging characteristics have been a major attraction to investors during this period of instability, greater inflationary fears and a falling dollar," WGC Chief Executive Officer James Burton said in a media release. "We are delighted to see overall demand for gold rise very strongly on last year."

Burton also said the WGC believes investor interest will remain strong in the near future, and as the price stabilizes, major gold-jewelry-buying nations such as India, China and the Middle East will quickly adapt to a higher floor in the price.

Due to the impact of a slowing economy on demand for mainstream articles combined with the high gold price, American gold jewelry demand fell by 13 percent in the third quarter compared with the same period last year. High- and mid-market demand for gold jewelry, however, remained brisk.

Demand in India was 5 percent higher in tonnage terms in the third quarter compared with the same period last year, a slowdown from the rapid pace in the first half of the year. Demand was very strong in the first two months of the quarter, but then faded as the price started to climb in September, impacting gold demand in the run-up to Diwali.

In contrast, there was no slowdown in demand in Mainland China, where the third quarter brought a further 25 percent increase in demand compared with the same period last year.

Demand remained strong throughout the Middle East, increasing by 19 percent in Saudi Arabia, 15 percent in Egypt, 10 percent in United Arab Emirates and 3 percent in other Gulf countries combined. Strong economies in the Arabian Peninsula and a recovering economy in Egypt, together with the favorable price environment for jewelry buying in the first two months of the quarter, easily outweighed the negative impact of the price rise in September.

In Turkey, an all-time record demand of 86.3 tonnes was reached in the third quarter, and gold jewelry demand reached its second highest quarter ever. A combination of increased purchasing power, an appreciation of the lira against the dollar and political tensions all supported demand.

Russian gold jewelry demand increased to 22.4 tonnes in the third quarter, 23 percent higher than the same period last year, with rising consumer incomes and a rapidly improving retail environment both key factors.

To view the full Q3 2007 Gold Demand Trends Report, visit Gold.org.

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