Investors in Europe and North America went on an extraordinary shopping spree for gold coins and bars in the final quarter of last year, snapping up 148.5 tonnes, a jump of 811 per cent compared with the same period in 2007, as the collapse of Lehman Brothers led a massive increase in safe haven buying.
This rush into physical gold by western investors pushed global retail investment up almost 400 per cent to 304.2 tonnes, according to the industry-backed World Gold Council, which released its fourth-quarter Gold Demand Trends report on Wednesday.
The WGC’s data confirmed earlier reports from traders about widespread shortages of coins and exceptional buying interest. Retail investors in France, for example, become net buyers of gold for the first time in a quarter of a century at the end of last year.
Investment inflows into gold exchange traded funds (ETFs) reached 94.7 tonnes in the fourth quarter, up 18 per cent on the same period in 2007, but down from the record 150 tonnes of inflows seen in the third quarter of 2008.
ETFs have seen strong inflows continue this year. The SPDR Gold Trust said its holdings surpassed the 1,000 tonne mark on Tuesday, reaching 1,008.8 tonnes, up by 228.6 tonnes so far this year.
The SPDR Gold Trust, the largest physically backed exchange traded fund, is now the world’s seventh-largest holder of gold bullion, having absorbed about 10 per cent of global annual mine output in the past seven weeks.
Looking ahead, the WGC said investment demand was likely to be underpinned by the extreme levels of uncertainty surrounding the outlook for the global economy and other asset classes.
The strength of investor interest has analysts wondering just how far the gold price could rise.
“There is a very strong case to be made that the current rally in gold is potential pre-positioning ahead of a much larger move at some point in the future,” said Michael Jansen, analyst at JPMorgan.
Mr Jansen said that if ETF investment inflows and demand for coins and bars remained as robust this year and the last half of 2008, there was a “very good chance” that the gold price would remain supported.
Mr Jansen also said that if current buying was accompanied by a broader portfolio shift by investors who were worried about possible currency debasement, sovereign risks, the outlook for monetary or fiscal policy or the threat of inflation, then “quite simply, the outlook for gold is stellar”.
“This is because the liquidity in the gold market is simply a fraction of the potential demand if the market truly believes that gold is the store of value,” Mr Jansen said.
However, John Reade, precious metals analyst at UBS says investment demand needed to stay “super-strong” if gold prices were to move higher in the face of weak demand from the jewellery and industrial sectors.
The WGC noted that the surge in investment flows had been partially offset by the fall in jewellery consumption and decline in industrial demand, down 5.5 per cent to 538.9 tonnes and down 10.4 per cent to 98.6 tonnes respectively in the fourth quarter compared with the same period in 2007.
Rising prices have also led to an increase in gold scrap returning to the market, up 15 per cent to 320 tonnes in the final quarter of last year, and accounting for just under a third of total supply in the period.
“Our refinery contacts tell us they are groaning under the weight of scrap returning to the market, especially in Asia,” Mr Reade said.
Gold surged close to the $1,000 mark on Wednesday, reaching a fresh seven-month high of $984.65 a troy ounce, up 1.6 per cent on the day.