By Bahattin Gonultas
ANKARA
Global demand for gold dropped slightly in the third quarter as investors worried about which way the price would move.
Global demand this year was 2 percent lower than in the third quarter last year, the World Gold Council said in a report released on Thursday.
The Council, a London-based non-profit association of the world's leading gold mining companies, blamed the lack of a clear direction in price movement for the decline.
"Quarterly volatility in the dollar gold price was among the lowest levels seen over the past two decades.This was both a cause and effect of the benign demand environment. Investor behavior in particular contributed to this circularity: the lack of a clear price signal caused investors to hold back from buying gold, which in turn dampened down price moves," the council said in its third-quarter report on Gold Demand Trends
The global demand for gold for the period July-September was 929 tons, worth $38.5 billion, down 6 percent compared with 953 tons worth $40.6 billion in the third quarter of last year.
The council said the period saw subdued trading on the gold market. It added that a relatively stable gold price and a stable U.S. dollar contributed to the lackluster quarter, with investors holding back from buying and selling.
The average gold price of $1,281 per ounce was down 3 percent from the third quarter in 2013.
Consumers also bought less gold in the quarter, and global jewelery demand, which represents more than half of total global gold demand, was slightly down year-on-year to 534.2 tons from 556.3 tons -- a decrease of 4 percent.
But India saw jewellery demand surge 60 percent to 183 tons.
The council said that the increase is partly reflective of the weakness in the third quarter in India last year - when the government introduced import curbs and raised import duties for gold jewellery.
“High gold demand from India also demonstrates the resilience of the country’s appetite for gold jewellery. Improved consumer confidence in both the domestic economy and the new government added to the positive sentiment, with strong levels of purchasing being seen in the build up to Diwali,” the council said in a statement. Diwali is a holiday period in which gold purchases rise exceptionally.
China, which is the world’s biggest gold market today, on the other hand, saw a 39 percent drop to 147 tons. “China’s jewellery market continued to normalise following last year’s rapid expansion,” the Council report said.
However, there were continued signs of recovery in some Western markets as jewellery demand in the U.S. rose by 4 percent to 34.4 tons, and in the U.K. rose 18 percent to 4.6 tons. Consumer confidence continued to grow in line with the economy and yellow gold came back into fashion in both markets.
Annual global investment in bars, coins and exchange-traded funds was 204 tons, a rise of 6 percent from last year, and central bank purchases totaled 93 tons, a decrease of 9 percent. It was the 15th consecutive quarter in which central banks were net purchasers of gold.
In this year to date, central banks have bought 335 tons of gold compared with 324 tons in the same period last year.
Central bank purchases were driven by a number of factors, including a continued diversification away from the dollar and the backdrop of ongoing geopolitical tension.
"In 2013, India was impacted by import curbs and increased import duties imposed by the previous government, whereas exceptional buying in China during the same period shaped buying patterns in 2014" said Marcus Grubb, managing director of investment strategy at the World Gold Council.
"The long-term sources of demand - jewellery, investment, central banks and technology remain robust and diverse. People around the world buy gold for different reasons at different times, reinforcing the unique self-balancing nature of the gold market," Grubb explained.
“With recycling at a seven-year low and mine supply looking increasingly likely to be constrained in the future, the outlook for physical gold demand remains strong,” Grubb said.
Total supply decreased 7 percent in the quarter to 1,048 tons compared with 1,129 tons in the same period of last year. "We expect supply to peak in 2014 and to plateau over the next 4-6 quarters," the council said in its report.
-Gold price hit bottom in November
The gold price in early November dipped to its lowest point in four-and-a-half years since 2010.
The price of gold dropped to $1,137.40 per ounce in the first week in November of 2014.
Rıdvan Basturk, research assistant at the Istanbul-based ALB securities, said that investment funds have been selling gold and thus pressuring the price lower.
“Moreover, the US dollar index, which tracks the performance of the greenback against a basket of six major currencies, hit a high level recently, so funds flow into the dollar and out of gold,” Basturk said.
Basturk forecasts that, if the gold price continues to fall, a drop to $1,130 per ounce can be expected, then a hold at that strong support point.
Should the price begin to rise, Basturk predics a jump to the resistance point of $1,180 per ounce.
The strong dollar contributed to reduced demand for gold this month, a trend reinforced by Japan's decision to expand its monetary stimulus measures, thus reducing the value of the Japanese yen.
-Turkey sees jewellery demand drop
Turkey, the world's third-largest consumer of the precious metal, saw jewellery demand drop to 19.2 tons in the quarter, the lowest third-quarter figure ever.The council said consumers were unnerved by domestic political turmoil, worrying economic signals, and escalating Syrian violence in close proximity to the Turkish border.
“The ban on paying for gold jewellery by credit card installments continued to weigh on the Turkish market, although this restriction was partially repealed in October. Consumers buying gold on credit will now be able to pay in installments for up to four months. This should provide some support to Turkish jewellery demand going forward,” the report said. Gold is also seen as a safe-haven investment in Turkey,
Turkey's total gold imports in the first seven months of the year were 50.95 tons, a 77 percent decline from the same period last year.
Turkish people buy gold when prices are low and sell their gold and jewelery when prices rise. Jewellery is also seen as a traditional gift for new babies and wedding ceremonies.
Separately, Turkey’s gold imports in the first 10 months of this year fell by 71 percent to 72.2 tons compared to the same period last year according to the Istanbul Gold Exchange.
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