Demand for gold reached a record high in the third quarter as investors sought refuge from the financial crisis and volatile stock markets, according to the World Gold Council.
By Paul Farrow
The WGC said that demand for gold reached an all time quarterly record of US$32bn between July and September as investors around the world sought refuge from the global financial meltdown. This was 45pc higher than the previous record in Q2 2008.
Demand for gold via exchange traded funds (ETFs) and bars and coins, was the biggest contributor to overall demand during the quarter.
The figures show investment demand from private investors rose 121pc to 232 tonnes in Q3, with strong bar and coin buying reported in Swiss, German and US markets. The quarter also witnessed widespread reports of gold shortages among bullion dealers across the globe, as investors searched for a haven. Overall, Q3 saw Europe reach an all time record 51 tonnes of bar and coin buying and France became a net investor in gold for the first time since the early 1980s.
Gold ETFs enjoyed a record quarterly inflow of 150 tonnes. The peak in inflows occurred in late September, triggered by the collapse of Lehman Brothers and a fear of banking sector failures. Net inflows surged by an unprecedented 111 tonnes during five consecutive trading days, equivalent to US$7bn. Jewellery buyers also returned to the market in droves on a lower gold price.
James Burton, chief executive officer of World Gold Council, said: "Gold's universal role as a store of value has shone through during this quarter helping attract investors and consumers to all forms of gold ownership. The rise in demand for gold bars and coins has been impressive as has the record rise in gold ETF inflows."
Mark Harris at New Star said that gold shares continued to look cheap and continue to be a decent portfolio diversifier.
He said: "The process of global deleveraging may be affecting many previously reliable ratio signals, so it is important to monitor the activity of the constituent instruments. Many investors have retreated from mining stocks due to concerns about a slowdown in emerging markets' growth and the potential effects of inflation on consumer spending, particularly in China, the world's fourth largest gold producer. Any slowdown in growth would be from a high base, however, and many emerging market economies continue to enjoy healthy growth on a relative basis.
"But I believe that the recent underperformance of gold stocks represents a necessary correction following a lengthy commodities bull run. It anticipates higher levels over the coming months and expects to increase its holdings in the sector to benefit from these moves. Overall, stockmarkets are likely to remain highly volatile, perhaps even retesting lows in the short term. In such circumstances, gold should remain a useful portfolio diversifier."
