India's gold demand revived in the July-September quarter. According to data compiled by the World Gold Council (WGC), gold demand totalled 223.1 tonnes during the quarter, up nine per cent year-on-year (y-o-y) from 204.8 tonnes in the corresponding quarter last year. The demand had seen a huge fall of 38 per cent in April-June to 181 tonnes, compared to the year-ago period. China, which had surpassed India in gold demand two quarters ago, saw its demand falling sharply in the September quarter.
WGC on Thursday said, while announcing the gold demand trend report for July-September, India's demand went up due to restocking of gold by jewellers for sales during the festive season. The council attributed the gold preference by Indians to the fact that "Indian consumers also seem to have adjusted to the rise in gold price levels".
On outlook for India's demand, Marcus Grubb, WGC managing director-investment, said: "After a slow start to the first half of 2012, Q3 (September quarter) witnessed a gradual pick up in gold demand in India ahead of the festive and wedding season that falls in Q4. Against the backdrop of a slowing economy and persistent inflation, this upward trend, encouraged by India's socio-cultural affinity and gold's significance as an effective store of wealth, is likely to continue through the end of 2012."
In China, demand fell eight per cent to 176.8 tonnes in Q3 from 191.2 tonnes in Q3 2011 due to a fall in jewellery demand by six per cent and investment demand by 12 per cent, mainly as a result of negative sentiment surrounding China's slowing economy. Global gold demand in Q3 was 1,084.6 tonnes, down 11 per cent from the record Q3 2011 figure of 1,223.5 tonnes. This dip, according to WGC, is in comparison with exceptional demand in Q3 last year. Gold demand remains resilient. The September quarter was above the five-year quarterly average of 984.7 tonnes, according to the World Gold Council's Gold Demand Trends Report.
Major contributors to the global gold demand were the exchange traded funds (ETFs) and central banks worldwide. "Central banks bought 97.6 tonnes in the quarter. In six out of the last seven quarters, central bank demand has been around 100 tonnes, which is a sharp increase from as recently as 2010. The year to date figure for central bank buying is up nine per cent," the report said.
Central banks have been buying gold to diversify their currency reserves, giving the feeling that the yellow metal continues to be a safe heaven. Global investment in ETFs over the quarter was up a significant 56 per cent to 136 tonnes from Q3 of 2011.
While the council does not predict prices, the indication available from the council's managing director for investment is interesting. "Gold is beginning to re-establish itself as part of the fabric of the financial system. In the medium term, the quantitative easing initiatives in the West and the continuing growth story in the East, particularly in India and China, coupled with the seasonally strong quarter coming up in Asia, are excellent indicators for further growth in the gold market," Grubb said.
"Against a backdrop of continued global economic uncertainty and elections in China and the US, it is clear from five-year rising demand trends that gold's fundamental property as a vehicle for capital preservation continues to endure, as evidenced by this quarter's increase in global ETF investment, up 56 per cent, and continued purchasing by central banks, the ultimate long-term investors," he added.