Changing faces of gold demand

The World Gold Councils Gold Demand Trends Report for Q32012 is quite reflective of the changes the overall global economy is going through.
At roughly 1,085 tonnes - worth about 58 billion dollars - gold demand during July-September this year was 10 percent above what was seen in the second quarter, but 14 percent down in value terms relative to the same quarter last year.
There were two aspects of gold demand in the quarter under review that warrant mention; firstly, the differing sentiments in gold demand as an investment, and changing dynamics of gold demand by leading consumers India and China.
As far as investment demand of gold is concerned, in the physical form of bar and coins, demand plummeted 30 percent year-on-year in Q32012. While it can be partially attributed to subdued activity in asset trade in general rather than any profit-making activity, this is largely indicative of a high base-year effect.
"A year-on-year fall in the demand for gold bars and coins was largely a reflection of the strength of demand in Q32011, a period of exceptional investment inflows. Given the lack of seasonality in investment, it is more meaningful to consider quarterly data in the context of a longer-term trend; Q3 bar and coin demand was 13 percent above the five-year quarterly average of 260.6 tonnes," explains the WGCs report.
But before one can make strong inferences, quite the reverse had been happening in the gold ETF market - the non-physical trade in gold. Quantitative easing announcements by key central banks - the Fed and the European Central Bank - led to demand for gold ETFs picking up in August right through September.
This brings to light the differing sentiments in investment demand for gold. However, it may also be indicative of a greater inclination of trade in ETFs over the physical trade in gold.
As far as demand from countries is concerned, demand in India remained quite robust in the quarter under review, both in terms of jewelry and investment demand. Strong gold prices towards mid-Q3 this year fueled price expectations amongst Indian gold buyers, explaining the vigorous purchase trend in this market.
Other reasons explaining the rise in gold demand in India this quarter include recovery in rainfall in September which boosted sentiments to some extent, and preparatory buying for the festival season that will fall in the fourth quarter.
On the other hand, demand in China remained lackluster, reflecting the overall economic slowdown the country is going through. A five percent year-on-year decrease in demand for gold jewelry and 12 percent for gold bars and coins was witnessed in the country in the quarter gone by.
Yet, optimism prevails regarding Chinese gold demand for the current quarter, as expectations of economic stimulus from the new political leadership rise and the holiday season draws closer. Further, the launch of gold ETFs in China in 2013 also lend hope regarding strengthening demand in the country in the days to come.
"There are investors not able to access the gold market as liquidly as they would like and the ETF obviously opens up a lot of avenues there," Marcus Grubb, Managing Director for Investment at the WGC, was quoted by the Financial Times.
All in all, gold demand has been reflective of the economic telltales on a global level.
Going forward, analysts expect demand to be uplifted as it is believed that the market has not capitalized on the reelection of Obama, and the London Bullion Market Association forecasting that gold prices will rise around the same time in 2013 - crossing the 1,800 dollars per ounce mark - albeit not to astounding levels.