Gold demand in Q3 2012 increased by a notable 10% compared to Q2, but dipped in comparison to Q3 2011. Furthermore, investment options like gold coins and bars or bullion also witnessed a decline of 16% as compared to Q3 2011.
The trend which stood out in Q3 when it came to investments was that of gold ETFs, all while the demand for gold jewellery and its use for technology saw a downward trend, that is 2% and 6% respectively, in the same time frame.
The gold supply in 2012 waned, with a yield of 1188.3 tons. Despite this, a majority of individual buyers continued buying the metal as an investment even though investment demand was lower than in Q3 2011. The diminishing demand for gold bullions and coins was reflected in the 30% decline as compared to the previous year. However, it is to be noted that demand for these instruments had touched exceedingly high levels in 2011 relative to the preceding five years.
The best performing gold market in Q3 2012 was India, which witnessed a 7% and 12% increase in gold jewellery and investment demand respectively. The Indian market alone accounted for about 30% of the total consumer demand for the yellow metal in 2011, due to the festive season and positive outlook on the economy and gold prices.
The converse, however, was apparent in China. China’s gold market took a beating due to a relatively negative outlook on economy and slower growth at present, represented by a 12% decline in demand for gold coins and bars (on a year on year basis). That said, this pattern is believed to be just temporary, and the Chinese gold demand and supply statistics are expected to improve in the long term.
Last but not least, central banks, which have increased their purchases of gold reserves in the past few years, accounted for approximately 9% of the total gold demand in the Q3 2012 phase.
The precious metals market is a highly dynamic one, with most of its activity being spurred by gold prices. The price of the yellow metal is propelled by demand and supply, but there are several other factors that influence its day-to-day value. These include its viability as a long-term investment, which makes it a global currency in the truest sense of the word.
Gold prices have skyrocketed over the decades in comparison to other national currencies. What drives this momentum, and why?
Gold and global currencies
The gold market is largely influenced by the trade of both physical and ‘contract’ gold, as well as the value of the U.S. dollar. The need to buy gold in any form is inversely proportional to the might of the American dollar: the stronger the U.S. dollar, the lower the price of gold, and vice versa.
However, any change in the buying and selling patterns of gold is owing to currency fluctuation worldwide and is not just limited to the U.S. dollar.
Gold and central reserves
Central reserves the world over hold the highest concentration of gold bullion. As a result, gold prices are also highly dependent on the policies of, and the reserves in such institutions. If a central bank sells off a certain percent of its gold reserve, the price of the metal may fall. On the opposite side of the coin, however, its value may increase if banks fail to provide adequate investment returns to customers.
Global crises of a political or economic nature also have a significant impact on gold prices. National currencies can take a hit during times of uncertainty, and this is when the demand for gold rises since it is then viewed as a ‘safe investment’.
The above mentioned points present a very brief overview on what drives global gold prices. The standard accepted benchmark for determining the value of the metal is the London Gold Market Fixing, which comprises of five firms that buy and sell gold bullion. These firms are:
- Barclays Capital
- Deutsche Bank
- Societe Generale