A customer in a Beijing gold shop tries on a gold ring.DAVID GRAY/Reuters
Global gold demand fell 11 per cent in the third quarter compared to a year ago, pulled lower by dampened consumer appetite for the metal in China, according to a World Gold Council report published on Thursday.
In a quarterly review of gold market trends, the council said China's newfound appetite for gold took a vacation amid a highly publicized slowing of the economy that affected consumer sentiment.
"A notable slowdown in the expansion of the jewellery retail network magnified the impact on demand, as stock-building reduced accordingly," the council said.
China's jewellery sector was down 5 per cent in the quarter, while bar and coin investment demand fell 12 per cent year-on-year.
The pullback came as a bit of a surprise because China has otherwise been a major buyer of gold for jewellery. It is still seen ending the year as the world's largest consumer for the first time ever, overtaking India.
Falling demand in China was mitigated by other factors.
After slumping demand earlier in the year, India surprised to the upside in the quarter, coming in as the world's strongest performing market, the council said.
"Indians appear to have acclimatized to recent price trends and have been buying into a rising market," the council said.
Jewellery and investment demand in India was up 7 per cent and 12 per cent respectively, the report said, as consumers bought into rising prices for gold on the local market.
In another turn around, Marcus Grubb, managing director for investment at the council, pointed at an overall 56 per cent-rise in physical demand for exchange traded funds (ETFs) in the quarter, evidence that investors are taking a new view of the sector as a refuge from economic turbulence.
"I think there is momentum building there, and I think more probably in the U.S. than elsewhere, because the interesting fact about this year was that until midyear you'd seen the U.S. ETFs lag behind European ETFs and ETFs in India, where you'd seen big increases in gold investment," he said in an interview. "But since then, you've seen the ETFs pick up, especially in the United States."
Spot gold is trading at around $1,727 (U.S) per ounce this week, well above where it started the year at $1,566. That is still well below highs of $1,790 reached in September after the U.S. Federal Reserve Board anounced a new round of quantitative easing in the form of a multibillion-dollar bond-buying program. At the same time it pledged to keep benchmark interest rates near zero until at least mid-2015, also supportive of gold prices.
Mr. Grubb would not say where he expects gold prices to go in coming months, but suggested continued economic uncertainty in the global economy, underscored by issues in the United States and Europe, would be supportive as investors look more to gold to preserve capital.
"I think looking into 2013, we would expect the gold price to continue to strengthen ... I think it means medium term, we still remain very positive about the outlook for the gold market," he said.