Gold supply rising despite investment demand

A 5% drop was noted in Q2 demand for jewellery (down 64.9 tonnes), which continued its three-quarters long decline that started in the third quarter of last year–coinciding with gold’s ascent to, and maintenance above the $1K level. While industrial applications demand for the metal was lifted by a 24% recovery in the electronics sector, dental gold use fell to an all-time low of just above 12 tonnes.

The supply of gold is on the rise. No “if,” no “but.” The past three months have seen an 18% gain in the flow of gold bullion into the market, resulting in a 1,131.6 tonne tally. Still convinced the world is running out of the metal? Then, tally the following: a 6% gain in mine output (from a combination of production and ebbing de-hedging) and a substantial (and once again, price-driven) 35% rise in scrap gold flows.

Nearly 500 tonnes of existing gold holdings were let go of, in the wake of headline-making gold prices last quarter. In other words, it is worth holding up that very number, against the 534.4 tonnes of what is labeled as ‘identifiable investment demand.’ Let’s just call it ‘identifiable disinvestment’ for lack of a better word. Oh, and very little talk about central banks buying a net of only 7.7 tonnes of gold on the quarter; at a time when expectations of continuing replays of India’s late 2009 purchase were the norm in hard money commentaries. The IMF sold 47 tonnes during the period.

Not taking anything away from the reality of the crisis-driven investor purchases of gold in the second quarter, we still need to put the overall numbers into perspective on a year-on-year basis. While monthly or quarterly fluctuations are certainly noteworthy, and they do make for currently very attractive headlines, so might be the larger trends evidently afoot since the epic crisis period in 2008 in America came and went.

Here is how that broader picture (the tallies of the twelve months ending June 30 versus the same period last year) shapes up in key gold demand areas, based on the World Gold Council’s very own statistical tables:

1) Jewellery demand, down 5%. 2) Net retail investment, down 12%. 3) Bar hoarding, up 26%. 4) Official coins, down 13%. 5) Medals & imitation coins, up 21% 5) “Other” identified retail investment, down 50%. 6) ETF demand, down 49%. 7) Total identifiable demand, down 14%. – Clearly, the figures combine to yield a slightly different situation. One, that, absent mega-crises, or fresh waves of spec fund sprints to the gold well, continues to be unsettling. If you do care about fundamentals, that is. At all.

The question, at this juncture, is still what, if any, particular economic data set will offer market participants a modicum of peace of mind any time soon. Simply relaying a headline that notes a gain in durable goods orders- the first such increase in a trimester- is, at this time, apparently insufficient. The mood is somber. New home sales falling to a record low pace this morning will not serve as a mood elevator.

There appears to be a desire among those in the investment community to hear from a Fed that remains convinced that despite bumps in the road and assorted potholes, the journey to economic daylight remains in progress. Well, maybe some such words could be on offer on Friday, when Mr. Bernanke makes his keynote speech at the annual gathering of the who’s who of the world of economists and US central banker. Maybe. Still the operative word, at this juncture.

Until tomorrow’s tallies,

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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