As investors the world over turn to a recognised store of value, gold demand has pushed through the US$100 billion barrier. Sustained investor interest in gold over the course of 2008 against a backdrop of the worst year on record for global stock markets and many other asset classes, helped push dollar demand for the safe haven asset to $102billion, a 29 per cent increase on year earlier levels.
According to World Gold Council’s ‘Gold Demand Trends’, identifiable gold demand in tonnage terms rose 4 per cent on previous year levels to 3,569 tonnes. As shares on stock markets around the world lost an estimated $14 trillion in value, identifiable investment demand for gold, which incorporates exchange traded funds (ETFs), goldÂ bars and gold coins, was 64 per cent higher in 2008 than in 2007, equivalent to an additional inflow of US$ 15 billion. Over the year as a whole, the gold price averaged $872, up 25 per cent from $695 in 2007.
The most striking trend across the year was the reawakening of investor interest in the holding of physical gold. Demand for bars and coins rose 87 per cent over the year with shortages reported across many parts of the globe. Aram Shishmanian, the new CEO of the World Gold Council, said:Â “These figures confirm that investors around the world recognise the benefits of holding gold during this time of unprecedented global financial crisis, recession and the spectre of future inflation. Gold has again proven its core investment qualities as a store of value, safe haven and portfolio diversifier and this has struck a chord with nervous investors.”
Incidentally, total demand remained very strong in the fourth quarter of 2008, up 26 per cent on the same period last year at 1036 tonnes or $26.5 billion in value terms. The biggest source of growth in demand for gold in Q4 was investment. Identifiable investment demand reached 399 tonnes, up from 141 tonnes in Q4 2007, a rise of 182 per cent. The main source of this increase was net retail investment, which rose 396 per cent from 61 tonnes in Q4 2007 to 304 tonnes in Q4 2008.
The most dramatic surge was in Europe, where bar and coin demand increased from just 9 tonnes in Q4 2007 to 114 tonnes in Q4 2008, a 1,170 per cent increase. ETF holdings broke new records during the quarter. Although the net quarterly inflow was down on the levels of the previous quarter, the growth rate on Q4 2007 was a strong 18 per cent.
Total gold demand in Greater China in Q4 was resilient to the global turmoil. Total off-take was up 21 per cent on the same period last year, with investment the main contributor to growth but jewellery demand also holding up well.
Investment demand in Thailand soared during the quarter, from a net outflow of 8 tonnes in Q4 2007 to a net inflow of 21 tonnes in Q4 2008. As with many other parts of the region, this turnaround was underpinned by safe haven buying.
Demand in the Middle East in Q4 2008 was up 1 per cent on year earlier levels, with the strong growth in the bar and coin market (up 139 per cent) offset by 7 per cent decline in jewellery demand, which makes up 90 per cent of the market in this region.
A combination of gold price volatility, a sharp fall in the local currency and exchange rate uncertainty led to a 59 per cent fall overall gold demand in Turkey in the fourth quarter.
In the United States, the deteriorating economic conditions produced a mix result for gold demand. Fourth quarter jewellery demand was down 35 per cent as consumer spending plummeted. In stark contrast demand for gold bars and coins rocketed by 370 per cent in Q4, representing 35 tonnes of gold.Â Â
At retail level, Indian consumers invested an all time high of Rs 88,056 crore on gold in 2008. Total demand in India, the world’s largest gold market, in the fourth quarter was up 84 per cent in tonnage terms, led by a very strong 107 per cent rise in jewellery demand, underpinned by investment attributes of gold.
Despite another setback of nearly 200 points on Thursday, the S&P/TSX composite index is still up 6 per cent from its November 20 low, clinging to a significant piece of the bear-market rally that global equities enjoyed through December and January. In doing so, it has outperformed virtually every major industrialised-world market. Most Canadian stocks fell, as a drop in gold and silver prices spurred a retreat in raw-materials producers, overshadowing a rally in energy shares.
Barrick Gold Corp. (ABX.TO),the world’s biggest gold producer, dropped 5.2 per cent to C$45.90. Kinross Gold Corp. (TSX: TK) led mining stocks to the steepest decline among 10 industries, as gold fell for the first time this week, and the company reported earnings that trailed analysts’ estimates. “Gold’s rolling over,” said Peter Hodson, who helps manage about $3.8 billion at Sprott Asset Management Inc. in Toronto. “Our index is holding up a bit better because of energy.”
Gold for April delivery fell 0.2 per cent to $976.50 an ounce in New York as demand eased after the metal climbed to a seven-month high on investor demand for a haven from the global recession. Gold is still up 10 per cent this year. Silver also retreated.