Gold demand fell 21 percent in the third quarter as outflows from physical bullion funds and a drop in buying from major consumer India offset firmer jewellery, coin and bar sales, an industry report showed on Thursday.
Gold consumption fell to 868.5 tonnes in the last quarter, a four-year low, from 1,101.4 tonnes in the same period of the previous year, according to the World Gold Council's latest Gold Demand Trends report, prepared in association with Thomson Reuters GFMS.
The demand slide is likely to slow in the fourth quarter, the WGC's managing director for investment, Marcus Grubb, said, as selling of gold-backed exchange-traded funds -- which have seen outflows of nearly 700 tonnes this year -- eases.
However, it is still likely to fall for a second consecutive year.
"From where we were last year in terms of demand, which was 4,382 tonnes, we'll be down between 5 and 10 percent at year end," Grubb said. "That's not as (big a drop) as we've seen so far, which is 12-13 percent, but it's still significantly down on 2012."
"That's almost all due to the ETFs," he said.
Overall investment demand fell 56 percent to 185.5 tonnes in the third quarter, with bullion-backed exchange-traded funds selling 118.7 tonnes of gold.
Central bank purchases were 17 percent, or 18.9 tonnes, lower in that period. Offical sector demand has fallen by 25 percent in the first nine months of the year to 296.9 tonnes from 393.6 tonnes, the data showed.
ETF outflows and lower central bank buying comfortably exceeded a 16.7 tonne increase in coin and bar demand and a 25 tonne rise in jewellery buying, to 487 tonnes.
Consumer demand for gold in the first nine months of the year hit a record 2,896 tonnes, the WGC said, as buyers took advantage of lower gold prices, which plunged 26 percent in the first half.
Prices peaked at $1,920.30 an ounce in September 2011 and are on track to post their first annual loss after 12 years of gains, currently down more than 20 percent on the year.
"We've had a strange year, where the market is going to be down in tonnage terms, down in price, driven by one factor: the ETFs," Grubb said. "(But) if you look at the trend, we're already at the point where most of that selling has already happened.
"In the last few weeks we've actually seen new net inflows into gold ETFs," he said. "Our guess is that that selling is bottoming out."
GOLD FLOWING EAST
Demand in India, historically the world's number one gold consumer, for jewellery, coins and bars fell 71 tonnes or 32 percent in the quarter after the government increased import tariffs in a bid to tackle a record current account deficit.
China accounted for the bulk of consumer demand in the last quarter, with offtake of 209.6 tonnes. Chinese gold jewellery buying rose by nearly a third, although coin and bar demand fell 8 percent to 45.9 tonnes.
Chinese consumer demand remains on track to outstrip that of India for the first time, the WGC said, totalling 779.6 tonnes in the year to date versus 714.7 tonnes for India.
"China is more than likely going to be the larger market by the end of the year," Grubb said. "Our formal target for both markets is for demand of 900-1,000 tonnes. I think China could well exceed the upper end of our target range, so you could see 1,000-1,100 tonnes in China.
"In India, we favour more the bottom end of the range, at 900 tonnes," he added.
Physical gold was increasingly shifting from west to east, the WGC said, citing data from Eurostat showing gold exports from the United Kingdom, where the bulk of ETF bullion is stored, to Switzerland rose more than tenfold between January and August.
U.S. gold jewellery demand, which slid sharply during the financial crisis as consumer confidence fell and prices rose, recovered further in the third quarter, rising 14 percent to 35.3 tonnes. U.S. coin and bar buying fell 22 percent to 8.1 tonnes, however.