World Gold Council’s quarterly report shows how price can influence demand patterns.
Let’s face it — it’s good to be the folks at the World Gold Council. As our favorite data source for what’s really going on in gold, they sit back and pour through the data so you don’t have to. But lest you get too thankful, remember that despite the “SPDR” in the name, the World Gold Council is also the sponsor of the most popular gold investment vehicle in the world, the SPDR Gold Trust (NYSE Arca: GLD).
And 2011 was a great year for gold ETFs. Despite a rather startling first quarter, in which gold ETFs actually had (gasp!) net redemptions, they closed the year with the best quarter they’ve had since the halcyon days of fall 2010.
Today the WGC wrapped up gold supply and demand for the year. Let’s dig a little deeper.
While it was a solid quarter for gold, it wasn’t a record breaker, with demand for jewelry being notably lower. This big drop in jewelry demand came primarily from India. The Indian retail market is widely seen as the savviest and most price sensitive. With gold’s high and volatile prices in the quarter, it’s not surprising the Indian consumer sat on the sidelines. Compared with Q4 of 2010, Indians’ jewelry demand was down 44 percent, and investment demand for bar and coin was down 38 percent. Chinese demand — another huge contributor to physical gold prices — stayed relatively flat, while Hong Kong, Vietnam and Thailand all experienced big spikes in buying.
The moral of the story here is simple: During periods of high prices and high volatility, we see big shifts in the demand pattern. And as usual, it’s the Indian consumer who really drives the market.