LONDON (Commodity Online): According to World Gold Council (WGC), total identifiable gold demand for the third quarter 2009 reached 800.3 tonnes, or US$24.7 billion in dollar terms, up 15% from the second quarter, as gold's long-term store of value and wealth preservation qualities continued to attract investors and consumers. Jewellery and investment demand in non-western markets rebound from the very low levels seen in the first quarter, while industrial demand started to recover in response to an improvement in economic conditions.

However, the Q3'09 Gold Demand Trends Report, released today by the WGC, shows a 34% drop on year earlier levels due to an exceptionally strong Q3'08, which saw soaring demand in response to the deepening global financial crisis and as many non-western markets responded to a dip in the gold price in that quarter. To address this, WGC compared Q3'09 against the five year Q3 demand average to 2007, which showed tonnage down just 4% on this basis.

In India, third quarter demand continued to improve from the exceptional lows witnessed earlier in the year as Q3'09 demand rose by 26% on Q2'09 levels. Absolute levels of demand remained relatively weak on a historical basis as high rupee prices and a poor monsoon impacted on consumer spending and confidence. The exceptionally strong Q3'08 levels saw demand down 49% in Q3'09 comparisons. Jewellery demand, of 111.6 tonnes, was down 42% on year earlier levels, while net retail investment demand of 26 tonnes was two thirds lower.

However, looking to the five year average for Q3 figures up to Q3'07 shows that demand for Q3'09 is down a more moderate 10% (-5% for jewellery and -25% for investment demand).

Aram Shishmanian, CEO of World Gold Council, commented: "Consumer and retail demand in India has been impacted by the high local price levels witnessed in this quarter. Whilst consumers are still adjusting to a new, higher pricing environment, there is still wide-spread awareness about gold's role as a store of value and as a result we are seeing less distressed selling as consumers look to preserve their wealth in the face of ongoing economic uncertainty.

"Globally, this quarter's demand trends demonstrate the diverse and robust nature of the Gold market which underpins the gold price. Early signs of economic recovery and improving consumer confidence have seen jewellery and industrial demand rise relative to last quarter, and the profit taking witnessed earlier in the year has markedly decreased.

"The outlook for investment is positive overall with absolute levels of demand likely to remain well supported by continued economic and currency uncertainty, inflation concerns and the search for diversification. In the official sector, we expect to see a continuing trend of central banks diversifying their dollar exposure in favour of the proven store of value represented by gold".

The figures, compiled independently for WGC by GFMS Limited, show that average gold prices for the quarter were 10% higher than in Q3'08 at US$960/oz. This rise was even stronger in a number of local currencies. Jewellery demand was up 17% quarter on quarter, due in part to seasonal factors. However, the high local pricing environment resulted in a 30% drop in jewellery demand relative to year earlier levels.

Identifiable investment demand overall, which includes gold exchange traded funds and bars and coins, was 227.2 tonnes, a slight increase on Q2 levels, but down 46% from the extreme highs of Q3'08.

The retail investment category, which includes demand in the form of bars and coins, again grew on a sequential basis, up 11%, although it was 31% lower than the third quarter of 2008. Flows into gold ETFs remained strong in absolute terms at 41.4 tonnes, although were again significantly lower than the relatively high figures recorded in Q3'08.

Inferred investment, which covers the less visible part of gold demand, experienced another quarter of net inflows. This inflow, of 30.7 tonnes was, however, significantly lower than in the previous two quarters.

Industrial demand recorded its second consecutive quarter of improvement, with quarter on quarter demand up 6%. Despite significantly lower tonnage demand compared to year earlier levels, there were some positive signs of an up-tick in end use demand, particularly within the electronics sector, which accounts for around 70% of industrial off-take.

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