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Gold bars

After gold demand plunged in the third quarter, producing the largest surplus of the metal since 2005, according to a quarterly demand report, gold analysts weighed in with significant commentary. That's produced some interesting color on an update mostly in line with expectations.

Broadly, Thursday's World Gold Council report showed that European and U.S. investors have exited their gold positions in specialist exchange-traded funds at record levels this year, just as Asian consumers absorb cheap tonnage flowing east.

Here are some reflections on the report from several analysts:

Barclays PLC (LON:BARC) bank: Analysts emphasized a gold market surplus of 289 metric tons, the largest surplus since 2005. That came thanks to demand falling 24 percent from last year, and falling 8 percent for the quarter, compared to a 12 percent uptick in quarter-over-quarter supply.

Despite stalled demand from India, caused by import regulations and a weaker rupee, overall jewelry demand fell only 3 percent from a year ago.

Outflows from gold exchange-traded products (ETPs) were slower than in the second quarter, but they accelerated in October. “Outflows slowed in August but are yet to stabilize,” wrote Barclays analysts. “ETP holdings need to stabilize to offer better support to prices, in our view.”

Barclays analysts didn’t adjust their gold price forecasts, which they kept at an average $1,325/oz. in the fourth quarter.

HSBC Holdings PLC (LON:HSBA): HSBC precious metals analysts noted the market surplus, and also underlined the 20 percent quarterly decline in demand. They noted much slower central bank buying of gold, though the institutions remain net buyers of the metal, not net sellers.

“We do not expect the market to react directly to the report,” wrote the analysts. “But it does illustrate strong Chinese demand and a drop in recycled supply, which are bullish factors.”

“Without some pickup in non-Chinese demand, particularly investment demand, it may be difficult for gold to hold rallies, at least in the near term,” they concluded. Indian gold demand fell by 32 percent from the previous quarter.

Capital Economics: Commodities analyst Julian Jessop noted that the statistics weren’t “all bad news.”

Despite global demand falling by more than 20 percent, gold prices have managed to stay afloat over the quarter, and even edge up, he said.

“The fact that the price of gold still managed to edge up over the quarter points to further upside if (or when) market sentiment does recover,” he said. Still, demand has fallen from year-ago levels for every quarter so far this year, driven largely by investor outflows from ETFs, he noted.

Net long positions – those betting that gold prices will rise – partly recovered among noncommercial speculators, he wrote, according to CFTC data tracking U.S. futures. That factor suggests that investor selling may be over.

In related gold news, UBS AG (VTX:UBSN) analyst Joni Teves noted on Friday that the latest 13F regulatory filing from the SPDR gold fund, the world’s largest gold investment fund, showed no high-profile exits from the fund in the third quarter.

The massive $35 billion fund still accounted for almost two-thirds of global gold ETP sales in the third quarter, though outflows slowed from earlier this summer. The fund is at its lowest holdings since February 2009.