Gold demand slows in Q3

Trails first half of 2007; global demand stronger on ETFs.

A divergent trend appears to have kicked in between the demand for gold in India and the world, according to a World Gold Council (WGC) report.

India's gold demand during the third quarter increased five per cent in tonnage terms (185 tonnes), but was slower than the rapid pace witnessed in the first half of the year, WGC said in its quarterly report on demand trends.

However, global gold demand was up 30 per cent at a new high of $20.7 billion (588 tonnes), on the back of record inflows into gold exchange traded funds during the same period.

The quarterly trends complied by GFMS, for WGC, showed that demand for gold in India was very strong in the first two months but has faded since. Prices started climbing in September, impacting demand in the run up to Diwali.

Globally, the ongoing financial crisis has had a direct impact on the gold market in the third quarter, as investors, rather than jewellery buyers, became the dominant force, according to the report. Despite this, jewellery demand rose six per cent in tonnage terms during Q3 and by 16 per cent in dollar terms.

The demand for ETFs stood at 138 tonnes, beating 113 tonnes in Q4 2004, when the world's largest gold ETF, streetTRACKS Gold Shares, was launched in New York.

"It is clear that gold's safe haven and hedging characteristics have been a major attraction to investors during this period of instability, greater inflationary fears and a falling dollar," James Burton, chief executive officer, World Gold Council, said in a statement.

Looking forward, WGC expects investor interest to remain strong in the near future, and as prices stabilise, major gold jewellery buying nations, such as India, China and West Asia, to quickly adapt to a higher floor in the prices, Burton added.

However, jewellery demand in the US, a major market, fell 13 per cent year-on-year due to the impact of a slowing economy, combined with the high prices of gold.

However, high and mid-market demand for gold jewellery remained brisk.