Demand For Gold Tanked In Q3
Outflows from exchange traded funds (ETFs) weighed on gold demand, even though the pace was slower than Q2.
ETFs witnessed a net outflow of 119 tonnes.
"Tactical investors in western markets exited their positions as they began to speculate on the early tapering of US quantitative easing amid signs of apparent improvement in the US economy.
"By the end of September, ETFs had seen outflows to the tune of almost 700t, with the bulk of this coming through in the second quarter as the gold price fell sharply. The pace of the outflows slowed during the last three months as momentum waned following the sharp Q2 washout."
But it wasn't just ETFs. Indian consumer demand was down 32% on the year.
India, which is one of the world's largest gold markets, put in place measures to stem gold demand as it struggled to narrow its current account deficit.
"With higher excise duties and import payment restrictions having had limited impact on the market in the second quarter, the government took a different approach in July. On top of a total ban on the import of gold coins, tight restrictions were imposed on gold bullion imports, tying them to a fixed level of exports. The 80:20 rule now in place stipulates that 20% of all gold imported must be exported before further imports can be made. The confusion over the complex new regulation hampered the market.
"So, too, did a sharp depreciation of the rupee, which pushed up local gold prices to near record levels, and the seasonal inauspicious period of Shradh (from mid-July and mid-August) during which gold purchases are typically postponed.
"Imports, already at a low level in July, all but disappeared in August and September as the market struggled to adapt to the new parameters. Gold entering the country unofficially through India's porous borders helped to meet pent-up demand, together with an influx of recycled gold that was drawn out by higher prices and promotions offered by retailers."
Central banks continued to be net buyers of gold and consumer demand in China was up 18% in the third quarter.