Talking Points:
- Q3 world demand for gold was down 2%, yet considered stable
- Total investment was up 6% over the previous year
- XAU/USD breaks resistance at $1,178.60, creating a new level of support
Thursday, the World Gold Council released their third quarter bulletin on Gold Demand Trends. The publication revealed that while down 2% in Q3, long-term demand for gold remains relatively strong with increases present in the investment, jewelry and central bank markets. Despite substitutes edging gold out of the technology sector, the precious metals negative correlation to US denominated assets and its revered nature have kept demand elevated enough to virtually maintain supply year-to-date.
Accounting for 45% of world gold demand, a 7% decline in jewelry sales serves as a principle explanation for the 2% decline in the metals overall demand. However, within the quarter September saw demand jump 60% in India, as the month coincided with Diwali. Considering it auspicious to buy gold jewelry during key festivals, the second highest Q3 level on record was documented. Demand for jewelry was also up year-over-year in the United States (+4%) and the UK (+18%) in light of lower price levels and higher consumer confidence. However, this momentum from the final month of Q3 is unlikely to continue into to Q4 as political unrest in Russia, Indonesia, Turkey and the Middle East will likely extend Q3 reductions in those countries.
Following jewelry, direct and indirect investment accounts for 1/3 of worldwide gold demand. Although bar and coin investment was down 24%, total investment was up 6% in comparison to Q3 in 2013. Demand reached 245.6t, a level just above the 10Y average of 240.6t. Requesting 200-300t per quarter, Europe accounts for much of this elevated demand after averaging just 2.6t per quarter prior to the financial crisis. Throughout Q3 gold demand among central banks maintained much of its strength after rising 28% in Q2.
As a way to diversify away from US denominated assets and hedge against inflation, in the last four years central banks have become net buyers of gold. In keeping purchases at 2013 levels, demand for Q3 increased in the following commonwealth independent states: Russia (+55t), Kazakhstan (+28t), and Azerbaijan (+7t). These newly strengthened reserves are likely to remain as a fourth Central Bank Gold Agreement went into effect on the 27th of September, limiting the collective sale of gold among signatories.
Holding both cultural and financial significance, gold directly contributes around $210 billion to annual global GDP. However, moving forward the metal may face pressure, particularly in the technology sector (-5%), where substitutes such as palladium coated copper are being increasingly used.
Following a $125.10 decline, gold broke through resistance on the 14th of November creating a new level of support at $1,178.60.
XAU/USD 8H Chart
Chart Created by Walker England Using MarketScope2.0
