We’ve had supply quite tight. I think a nice thing on the supply side is the fact that the central banks seem to be selling less. You may have noticed that the signatories to the Central Bank Gold Agreement, in the second year of the current agreement, which ended on September 26th, actually did not sell up to their ceiling. They sold, on the report figures, about 100 tons below that. And that’s the first year that they haven’t met the ceiling.

Source: [1] MoneyWeb

Jill Leyland, Economic Adviser, World Gold Council
Third-quarter gold demand trends.

Alec Hogg
Posted: Thu, 16 Nov 2006 17:00 | © Moneyweb Holdings Limited, 1997-2006

MONEYWEB: Well, from the bold entrepreneurs to the conservatives’ choice – and that’s all about gold. Jill Leyland joins us now. She’s economic adviser to the World Gold Council. Jill, you’ve just received the third-quarter analysis of demand and supply for gold. And it shows that demand for gold is down in volume terms, in tonnage terms. But in value terms, it continues to boom, up 37%. You would have thought, with the higher gold price, that maybe the demand, particularly for jewellery, which is easily the biggest offtake of gold, might have fallen?

JILL LEYLAND: Yes, indeed, you might. But I think it’s characteristic of the gold jewellery market that it’s not so much the level of price that puts people off, it’s the price volatility. So this last quarter has been quite interesting because, at the beginning of it, if you remember the way the gold price moved around quite sharply in the first half of the year, that price volatility overshadowed the market, and jewellery demand in particular was quite slow at the beginning of the quarter. But as the price stabilised, it came back, and it came back with a bang, particularly in September. So we saw, very, very good buying at prices – we were sort of in the $570 to $600/oz range, comparable to the sort of demand we had seen back in the first half of 2005, when the price was only around $420 to $440/oz.

MONEYWEB: So it’s almost as though the market adjusts to a new level and the new level today could be $600?

JILL LEYLAND: Indeed. That is what happened. Obviously, there is some price level effect. But the price volatility is the thing that pushes consumers to the sidelines.

MONEYWEB: Jill, it’s always interesting to compare gold jewellery with platinum jewellery, because they are such important constituents of those two metal prices. We’ve seen from the Johnson Matthey report that platinum jewellery has contracted this year – it’s actually falling quite significantly. For the year as a whole, in value terms, will gold jewellery be up?

JILL LEYLAND: In value terms, it certainly will, yes, because for the first three quarters we’ve got jewellery value 15% up already. And we’ve got the price around 40% up, year on year. So that itself will push the value up. In tonnage terms, it won’t. But the interesting thing there is we looked at all the different markets, and just about everywhere, at least in all the markets we track, people are spending more on gold jewellery now than they were a year ago.

MONEYWEB: So that’s a good, solid underpin. What about exchange-traded funds? We know they’ve been the success story for the gold demand situation in the past couple of years. How did they do in the third quarter?

JILL LEYLAND: They continued to grow. They grew at a slower rate than they have in the past, but since the end of the third quarter we’ve seen another surge in demand for them. And if you look at the exchange-traded funds taken as a whole, they now account for over 600 tons of gold, which is quite substantial.

MONEYWEB: Indeed it is. Well, how substantial is it? Is it getting close to one year’s supply from the mines?

JILL LEYLAND: Well no, not yet, because mines supply around about 2 500 tons a year. But it’s certainly making a big difference in the market. And the good thing, I think for us, about the exchange traded funds is that it seems to be sticky gold. In general, it’s investors with a long-term horizon who are buying. So that you find people will buy and, even when other investors, the short-term speculators coming out of the market, you don’t see much attrition in the ETF holdings. You might see a tiny dip. But by and large, it’s owned by people who buy to hold. So that’s very good as far as we are concerned.

MONEYWEB: So the whole demand-supply equation looks pretty positive for gold going ahead?

JILL LEYLAND: It does, yes. We’ve had supply quite tight. I think a nice thing on the supply side is the fact that the central banks seem to be selling less. You may have noticed that the signatories to the Central Bank Gold Agreement, in the second year of the current agreement, which ended on September 26th, actually did not sell up to their ceiling. They sold, on the report figures, about 100 tons below that. And that’s the first year that they haven’t met the ceiling.