Total identifiable gold demand in tonnage terms fell 11% to 3385.8 tonnes(t) during 2009 when compared to the exceptional levels reached in 2008, masking a progressive recovery in jewellery and industrial demand after a weak first quarter and resilient investment demand during 2009 as a whole. This resilience in demand was achieved in the context of average gold prices 12% higher than those in 2008, at $US972.35/oz.
According to World Gold Council’s (“WGC”) Gold Demand Trends published today, the gold market in the Middle East struggled in 2009 as weak economic conditions and high gold prices pushed demand down 28% on 2008 levels to 250.6t. Whilst total tonnage demand in the fourth quarter was down 32% at 51.1t on the same period in 2008, dollar demand for the same period was only 7% lower at $1.8bn, demonstrating a sustained level of consumer affinity for gold despite record prices and the difficult economic environment.
Anan Fakhreddin, Managing Director, World Gold Council Middle East and Turkey, commented:
“The 2009 year was one in which gold demand in the Middle East was severely impacted by weak economic conditions and record gold prices. However, at the global level, demand has been resilient. Investment flows were supportive in the first quarter, when global jewellery demand was very weak. Although investment flows subsequently tapered off, jewellery demand recovered strongly. There are emerging signs that buyers in some parts of the world, most notably India, are re-entering the jewellery market as economic conditions improve and consumers begin to adjust to the new pricing environment. In the Middle East, tentative signs of an improvement have been evident in January in response to the dip in the gold price.”
He added, “The outlook for demand in the Middle East remains uncertain. Improving global economic conditions should lead to higher sales to tourists during 2010, while sales to the local community will depend on domestic economic conditions. Globally, the outlook remains positive. The unique demand and supply drivers that support the global gold market continue to encourage sustained levels of demand from investors, consumers and central banks throughout the world.”
The 2009 figures, compiled independently for WGC by GFMS Limited, show that relative to Q4 2008, Middle Eastern jewellery demand fell 29% compared to the global average of 8%.
Egypt and the UAE suffered the most severe declines in jewellery demand in Q4 – down 35% and 32% respectively on the levels of Q4 2008 – as a result of the economic downturn. However, in $US value terms, the declines were significantly smaller at 10% and 6% respectively. Notably, Saudi Arabia and the other Gulf countries combined experienced a 9% rise in dollar value terms on the levels of Q4 2008, although this still represented a decline in volume terms (22% and 21% respectively).
Jewellery demand in Turkey in 2009 was down 51% on the levels of 2008 due to a combination of a very sharp rise in the local gold price early in the year and severe weakness in the local economy.
More broadly, while global jewellery demand was 8% lower in the final quarter of 2009 when compared with the same period last year, it showed clear signs of a rebound as the year progressed following a very weak first quarter. Demand recovered to 500.4t in Q4, up from 336.3t in the first three months of the year, suggesting increasing consumer confidence within the context of a higher gold price.
Total global identifiable gold investment in 2009 was up 7% relative to 2008, but down 50% when compared to the extremely high levels seen during the final quarter of 2008. Including inferred investment, which includes the over-the-counter market, total investment in 2009 was double the levels of 2008, but much of this was in the first quarter. More generally, strong investment in western markets offset weak levels of investment demand in non-western markets. The notable exception in the non-western world was mainland China.
In contrast, ETF demand in 2009, at 594.7t, was 85% higher than in 2008, equivalent to an inflow of $US17.7bn, due primarily to an exceptional first quarter. ETF demand was 67% lower for the fourth quarter than during the same period in 2008 when inflows were at unusually high levels.
In the Middle East, investment flows have been sensitive to the changes in gold price. In Q4, net retail investment was down 32% on the previous quarter and down 57% on the levels of the previous year. For the full year, net retail investment in the region fell 34% to 18.9t.
Globally, industrial demand benefited from a rebound in electronics demand, reflecting improved economic conditions. A comparison of fourth quarter 2009 and 2008 shows that industrial demand enjoyed a rise of 11% to 99.7 tonnes, albeit from a depressed base. Electronics demand, which for most of the last 18 months had been a severe casualty of the global economic crisis, rebounded strongly in Q4, jumping 25% relative to year earlier levels in a very positive indication that restocking of inventory is taking place on the back of a more optimistic economic outlook.
Significant drivers in the gold market were also apparent on the supply side in 2009, with the first quarter comprising the majority of the 11% annual increase in supply when compared to 2008 levels. The single biggest contributor to the first quarter rise was recycled gold as consumers took advantage of gold’s higher trading range.
However, supply was clearly supportive for the gold price over the remainder of the year. Recycling activity fell sharply in the second quarter, although it remained above historical norms. In the second half of the year producer de-hedging increased sharply, resulting in a downward impact on supply. The year also saw a significant reduction in net official sector sales, which totalled just 44t compared with an average of 444t per year over the five years to 2008.
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