Nov 20 a.m. (USAGOLD) -- Everyone loves a bargain and the currently suppressed paper price of gold is providing one of the greatest deals in recent memory. Our own Mike Kosares likened the present opportunity to buying gold around $300 per ounce early in the decade.
The World Gold Council reported yesterday that gold demand in Q3-08 reached an all-time quarterly record of $32 bln. This is a 45% increase over the previous record, which was set in Q2-08.
Retail investors are scrambling to acquire physical gold as a means to protect their wealth amid ever-rising concerns about the current financial crisis. Demand for bars and coins rose to 232 tonnes in Q3, a 121% increase over the same period last year.
Particularly strong demand was noted in America, Germany and Switzerland. The return of Indian buying is also reason to be encouraged. Consumer demand in India reached 250 tonnes in Q3, up 31% from a year ago.
"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," said James E. Burton, CEO of World Gold Council. He added, "The rise in demand for gold bars and coins has been impressive as has the record rise in gold ETF inflows. Perhaps most encouraging is the return to positive jewellery buying which has been absent for several quarters due to the high levels of price volatility."
The Guangzhou Daily reported yesterday that the People's Bank of China was considering raising gold reserves by 4,000 tonnes from the present 600 tonnes. If this report is accurate, it will be a major demand driver for some time to come.
Meanwhile gold supply fell 9.7% from year-ago levels. Reduced central bank gold sales were cited as the primary reason, but the well-developed trend of declining mining production is worth noting as well.
In the face of such strong demand, and falling supply, we continue to get the very valid question: Why isn't the price of gold substantially higher?
We've discussed the deleveraging phenomenon, which has suppressed the paper price of gold, quite extensively in our reports and videos, but data compiled by GFMS for the WGC puts it in clearer perspective. Institutional investment in gold saw a net outflow of 300 tonnes in Q3, eclipsing the 232 tonnes of inflow from the retail sector.
Institutions like banks and hedge funds have been forced to liquidate even very desirably positions in gold to offset losses in other assets, along with redemption requests. The WGC noted their report that gold was "one of the few assets remaining that could be sold at a reasonable price to meet margin calls on other, worse-performing assets."
It's difficult to say how long this deleveraging is likely to last, but when it does end, the realities of supply and demand in the physical market will reassert themselves. At that point, our suggestion that the current price of gold presents a monumental buying opportunity -- even with premiums what they are -- is likely to be affirmed.
Gold Market Movers:
US Philly Fed index for Nov tumbled to -39.3, well below market expectations.
US leading indicators for Oct -0.8%, well below market expectations.
US jobless claims for the week ended 15-Nov +27k to 542k, well above expectations.
SNB cuts 3-month Libor target by 100bp.
UK M4 money supply for Oct surged to 15.1% y/y, yet a 50bp rate cut is still likely in Dec.
German PPI for Oct higher than expected at 7.8%.
For gold, a tussle between two groups of investors
Reflation challenge & gold
China PBOC mulls raising reserves by 4,000 tons
Dow falls below 8,000, S&P at 5-year low
Global equities tumble as investors search for havens
Let Detroit go bankrupt
