LAUNCESTON, Australia – (Reuters) – It must be getting increasingly hard for the World Gold Council to find something positive to focus on when compiling its quarterly report.
The latest instalment, released on Thursday, is no exception and the council, which represents gold producers, chose to highlight what it termed the “good health” of the market for jewellery.
This was despite a drop in jewellery demand of 4 percent year-on-year in the third quarter, but maybe it looks better than highlighting the fact that overall gold demand fell to the lowest level in nearly five years.
However, instead of focusing on the demand side of the gold equation, if the council was looking for some better news on the outlook for the precious metal, the supply side offers some hope.
It’s becoming a more common theme in commodities this year, namely that supply-side dynamics are driving markets far more than demand, but many in the market have been slow to adjust to this.
Witness iron ore and coal, where much of the commentary is about the state of demand in China, while less is said of the massive boost to supply in recent years of these commodities, which has driven prices down to five-year lows.
But unlike those markets, where the oversupply is chronic and structural, gold supply is far more responsive to price signals and some is already starting to leave the market.
Total supply was 1,047.5 tonnes in the third quarter, a drop of 7 percent from the same quarter last year.
The first three quarters of 2014 saw supply of about 3,147 tonnes, which puts the whole year on track to come out at about 4,196 tonnes.
If that is the case, it means supply in 2014 will be 1.4 percent lower than in 2013 and about 6 percent below the level of 2012.
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