Gold Demand Climbs to Two-Year High as Buyers Snap Up Bargains

  • Demand for bars, coins, jewelry soar as prices hit 5-year low
  • Outlook for Q4 Indian jewelry demand `more muted,' WGC says

Buying of gold including bars, coins and jewelry rose to the highest in two years after lower prices spurred demand last quarter.

Purchases jumped 8 percent to 1,121 metric tons in the three months from a year earlier, the World Gold Council said in a report Thursday. Bar and coin buying rose by a third. The lobby also attributed gains to conflict between Russia and Ukraine, and the crisis in Greece.

“It is nice to have a good story to talk about in gold after what has been a rather quiet and stable first half of the year,” said Alistair Hewitt, director of market intelligence at the London-based council. “There is no doubt that dip in gold prices gave people who were sitting on the sidelines a real opportunity to enter the market.”

The WGC forecast demand for the year at 4,200 to 4,300 tons, after raising the estimate for central bank buying to a range of 500 to 600 tons, from between 400 and 500 tons, he said. Last year, overall demand totaled 4,217 tons.

Spot gold prices fell in London to the lowest in five years on July 24 as investors exited exchange-traded products backed by the metal. Cheap prices helped drive buying, with investment demand surging to 230 tons in the period, the council said. The price rebounded 3.5 percent from the low by the quarter’s end to $1,115.09 an ounce, according to Bloomberg generic pricing. An ounce of gold fetched $1,088 on Wednesday.

The lower prices prompted buying of jewelry in India, China, the U.S. and Middle East, the council said. Demand in India, normally concentrated in the peak Diwali holiday buying season, rose 15 percent to 211 tons as "festival purchases were brought forward." 

While Indian consumer demand, including purchases of bars, coins and jewelry, rose 13 percent to 268 tons, the council warned the outlook for the fourth quarter was “muted.” Total consumer buying in China rose 13 percent to 240 tons.

“It is fair to say that some festival demand has been brought forward,” Hewitt said. “We’re definitely going to see a strong amount of demand around Diwali.”

U.S. buying of bar and coin more than tripled to 33 tons, the highest level in five years. The lobby also reported strong European investment demand on concern over the Greek economic crisis and Ukraine conflict. Chinese investment demand grew 70 percent.

Holdings in exchange-traded products declined 66 tons, the council said, the biggest drop since the last three months of 2014. ETP metal has sunk a further 1.4 percent since end-September to 1,508.6 tons, according to data compiled by Bloomberg as of Tuesday.

Newly mined gold fell 1 percent to 828 tons. Older mines in South Africa and the U.S. are seeing falling output while many large new mines are near their production peaks. Total gold supply reached 1,100 tons, rising 1 percent.

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