Gold Demand Much Weaker Than Expected in Q3: High Price Is Caused By Speculation

The LA Times today highlights an report from the World Gold Council showing supply and demand in Q3 09. Total global demand for gold was 800.3 tons, down 34% from the 1,205.6 tons purchased in the same quarter in 2008.

Keep in mind that the peak in demand for physical gold, was in the Q3 of 2008.

Demand in Q3 09 also was below the 1,029.8 tons bought in Q1, though 10% higher than the 724.8 tons in Q2.

The reports states that gold demand was down in every major category, including jewelry, industrial use, official coins and purchases by ETFs.

"The drop in physical demand partly reflects simple price-sensitivity: As gold goes up, some buyers back away".

The report continues on the reasons that gold is so much higher. According to Kitco's Jon Nadler: "This has been a speculative fund-driven futures rally," In other words, traders who play in the futures markets are betting on higher gold prices. But they aren’t interested in owning the actual metal.

"In the case of gold, it could work out that speculative demand in the futures market will be followed by a big revival in physical demand if more people around the globe decide that they must own the metal as a hedge against paper currencies and financial calamities.

Gold bugs are already upset, some concentrating on the jewelry aspect of the report, but not on the part that mentions who is buying the gold futures and driving up prices.