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Gold Demand Trends

www.gold.org

August 2009

SECOND QUARTER 2009

Executive Summary The volume of total identifiable gold demand in the second quarter of 2009

was down 9% on the levels of a year earlier, equivalent to a 6% decline in

$US value terms to $US21.3bn. During the four quarters ended June 2009,

total tonnage was a healthy 21% higher than the levels of the corresponding

period a year earlier.

While the $US gold price in Q2 2009 was only 3% higher than in Q2 2008,consumers in several key markets experienced significant price gains. Over

the same period, the gold price rose 20% in Indian rupee terms, 28% in

Turkish lira terms, 31% in pound sterling terms, and 18% in euro terms.

The decline in tonnage relative to Q2 2008 was attributable to weakness

in jewellery and industrial demand, offset to a considerable extent by a

significant increase in investment demand.

Identifiable investment demand in Q2 totalled 222.4 tonnes, up 46% on

year-earlier levels. Net investment demand eased significantly relative to the

highs seen during the previous three quarters when the level of uncertainty

surrounding the economy and financial sector was at extreme levels, butremained very healthy on a historical basis.

The western-eastern divergence that was apparent in investment flows in

Q1 continued into Q2. Bar hoarding, which largely covers the non-western

markets, was down 36% on year-earlier levels, with investors choosing to

take profits due to the high gold price. In contrast, other identified retail

investment, which largely covers the western markets, rose from just 4.7

tonnes in Q2 2008 to 38.7 tonnes in Q2 2009. Once again, this is below

the levels experienced during the peak of the credit crisis but nevertheless

healthy on a historical basis. Official coin demand was up 62% on year-

earlier levels.

ETF demand, at 56.7 tonnes in Q2 2009, was robust on a historical basisbut nevertheless marked a significant reduction on the 465.1 tonnes

experienced in Q1 2009.

Jewellery demand in Q2 2009 was 22% below year-earlier levels. The

weakness was widespread, with western countries experiencing the

ongoing effects of economic hardship and non-western countries suffering

primarily from a high gold price. The exception to this trend was mainland

China, where jewellery demand rose 6% in tonnage terms relative to year-

earlier levels.

Industrial demand continued to suffer from the effects of weak economic

conditions, falling 21% relative to year-earlier levels. The sector experiencedan 18% quarter-on-quarter gain, reflecting a significant improvement in the

other industrial and decorative and electronics components.

Embargo: not for release before Wednesday August 19th 2009, 0700 hrs BST

Table of contents

Executive summary 1

Outlook 2

Demand 3

Jewellery 4

Industrial and dental 6

Investment 6

Supply 9

Consumer demand trends

in individual countries 11

India 11

Greater China 13

Other East Asia 15

Middle East and Turkey 17

USA 18

Europe 19

Historical data 21

Focus on China 22

Notes and definitions 24

2009 World Gold Council and GFMS Ltd


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August 2009 2

Gold Demand Trends

Gold supply in Q2 was up 14% relative to year-earlier levels. The biggest contribution came from lower levels of

producer de-hedging, with mine output and recycling activity making a smaller contribution. Net central bank sales of

38.5 tonnes in the first half of 2009 (compared with 145.8 tonnes in the first half of 2008) were the lowest for 12 years.

Please see the Supply section on page 9 for a more detailed discussion of Q2 2009 official sector activity.

Q2 supply was 23% below the levels of the previous quarter, the main contributor being a reduction in recycled gold.

Recycling activity abated significantly in Q2 but remained at high levels on a historical basis.

The move to net purchases by the central bank sector in Q2 reflected low levels of selling by the signatories to the

central bank gold agreement and modest purchases by non-member banks. A new agreement was signed earlier this

month, with a new ceiling of 400 tonnes per year compared to 500 tonnes previously.

OutlookThe outlook can only be explained by splitting theworld into two halves. Economic conditions in western

countries are fragile and while this is the case, the

outlook for jewellery and industrial demand will remain

soft but investment flows should be well underpinned. In

the traditional non-western gold markets, buyers tend to

behave tactically and the primary focus is the gold price.

Having taken profits through dishoarding or the selling

back of jewellery, consumers are now waiting for an

opportunity to buy back some of this gold at lower prices.

While there are clear pockets of demand on moves in the

gold price towards $US900-910/oz, this activity tends to

abate as the gold price moves higher. Consumers have

not yet adjusted to these higher price levels. The outlook

is therefore dependent on firstly, the gold price and

secondly, price expectations.

The recent trend of lower gold sales by the signatories to

the central bank gold agreement and pockets of buying

outside the agreement suggests that central banks, like

investors, are thinking about portfolio diversification.

Total net sales are likely to remain subdued, even with the

prospect of IMF selling.

The figures used in this reportThe data in this report are based on figures compiled independently by GFMS Ltd. Information from alternative sources is clearly indicated.Different from most commodity markets, the report includes value figures for demand as well as tonnage figures. There are two main reasonsfor this. First, over 85% of demand is discretionary spending either on a consumer product (jewellery) or as an investment. In both thesemarkets it is customary to comment on value figures. Second, changes in demand can also reflect growth or contraction in the supply ofgold. Commenting on both value and tonnage provides a more holistic picture. For global or regional value figures, the US dollar is usedas the measure. Apart from the fact that gold is one of the worlds major currencies, most of golds main markets are in countries whosecurrencies are either linked to the dollar or where exchange rates against the dollar do not normally change greatly from year to year, otherthan in line with inflation differentials. The use of the US dollar is thus appropriate.

Not all investment flows can be measured and those that cannot be are proxied by the statistical residual from the supply and demandbalance, known as inferred investment; this contains stock movements and other elements but it is usually dominated by those investment

flows not susceptible to statistical capture. Investment figures can, at times, include inventory changes by the trade.

The August 2009 edition of Gold Demand Trends brings the addition of four-quarter totals, and four-quarter percentage changes, for golddemand data. Future editions of the report will also include this data, thus building up a rolling 12-month picture of demand. This smoothedtime series should provide a clearer picture of the long-term trends in the various elements of gold demand.

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$bn, rhsTonnes (Q1 lighter colour)

Q1'09Q1'08Q1'07Q1'06Q1'05Q1'04

Chart 1: Identifiabledemand

Source: GFMS, WGC


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August 2009 3

2007 2008 Q108 Q208 Q308 Q408 Q109 Q2092 % ChQ209 vs

Q208

% ChYear on

Year3

Jewellery Consumption 2404.4 2185.8 446.7 517.8 673.1 548.3 345.1 404.1 -22 -8

Industrial & Dental 461.7 435.6 116.0 117.6 112.2 89.7 78.8 93.1 -21 -19

Electronics 310.6 292.7 80.5 81.3 76.4 54.5 50.2 60.4 -26 -23

Other Industrial 93.2 86.9 21.3 22.2 22.0 21.5 15.8 20.2 -9 -10

Dentistry 57.8 55.9 14.3 14.1 13.8 13.7 12.8 12.5 -11 -7

Identifiable Investment 685.9 1183.0 170.7 151.9 420.1 440.2 600.0 222.4 46 133

Net Retail Investment 432.5 862.1 98.1 147.9 270.6 345.5 134.9 165.7 12 115

Bar Hoarding 236.5 391.8 49.4 92.2 126.4 123.9 -33.1 59.4 -36 19

Official Coins 137.0 191.3 28.6 36.5 61.8 64.4 72.9 59.2 62 105

Medals/Imitation Coins 72.6 69.6 10.7 14.5 25.0 19.4 2.4 8.3 -43 6

Other Identified Retail Invest.4 -13.6 209.3 9.3 4.7 57.4 137.9 92.7 38.7 720 1934

ETFs & Similar Products5 253.3 320.9 72.7 4.0 149.5 94.7 465.1 56.7 1315 159

Total Identifiable Demand 3551.9 3804.4 733.4 787.3 1205.4 1078.3 1023.9 719.5 -9 21

London pm fix, $US/oz 695.39 871.96 924.83 896.29 871.60 794.76 908.41 922.18 3 6

Gold Demand Trends

DemandTable 1: Identifiable gold demand1 (tonnes)

Table 2: Identifiable gold demand1 ($USmn)

2007 2008 Q108 Q208 Q308 Q408 Q1'09 Q2'092 % ChQ209 vs

Q208

% ChYear on

Year3

Jewellery Consumption 53,696 61,074 13,281 14,920 18,862 14,011 10,079 11,980 -20 -2

Industrial & Dental 10,307 12,276 3,450 3,390 3,144 2,292 2,301 2,762 -19 -14

Electronics 6,938 8,270 2,393 2,343 2,141 1,392 1,465 1,791 -24 -19

Other Industrial 2,078 2,437 632 640 616 549 462 600 -6 -4

Dentistry 1,291 1,568 425 407 386 351 374 371 -9 -1

Identifiable Investment 15,293 32,477 5,077 4,378 11,772 11,249 17,523 6,593 51 152

Net Retail Investment 9,515 23,591 2,916 4,263 7,584 8,829 3,940 4,912 15 123

Bar Hoarding 5,176 10,832 1,468 2,658 3,541 3,165 -967 1,762 -34 21

Official Coins 3,020 5,280 851 1,051 1,731 1,646 2,129 1,755 67 120

Medals/Imitation Coins 1,586 1,933 319 418 701 495 71 247 -41 12

Other Identified Retail Invest.4 -267 5,546 277 136 1,610 3,523 2,707 1,148 744 1782

ETFs & Similar Products5 5,778 8,885 2,161 115 4,188 2,421 13,582 1,681 1356 198

Total Identifiable Demand 79,296 105,826 21,808 22,688 33,778 27,553 29,903 21,334 -6 30

Source: GFMS. 1. Identifiable end-use consumption excluding central banks. 2. Provisional. 3. Percentage change, 12 months ended June 2009

vs 12 months ended June 2008. 4. Other retail excludes primary coin of ftake; it represents mainly activity in North America and Western Europe.

5. Exchange Traded Funds and similar products including: Gold Bullion Securities (London), Gold Bullion Securities (Australia), SPDR Gold

Shares (formerly streetTRACKS Gold Shares), NewGold Gold Debentures, iShares Comex Gold Trust, ZKB Gold ETF, GOLDIST, ETF SecuritiesPhysical Gold, XETRA-GOLD, Julius Baer Physical Gold, Central Fund of Canada, and Central Gold Trust.

Source: WGC calculations based on data from GFMS. 1. Identifiable end-use consumption excluding central banks. 2. Provisional. 3. Percentchange, 12 months ended June 2009 vs 12 months ended June 2008. 4. Other retail excludes primary coin offtake; it represents mainly activity in

North America and Western Europe. 5. Exchange Traded Funds and similar products including: Gold Bullion Securities (London), Gold Bullion

Securities (Australia), SPDR Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, ZKB Gold ETF, GOLDIST, ETF Securities Physical

Gold, XETRA-GOLD, Julius Baer Physical Gold, Central Fund of Canada, and Central Gold Trust.


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August 2009 4

Gold Demand Trends

JewelleryThe second quarter scenario of historically high gold

prices at a time of severe global economic difficulty proved

to be a challenging one for most countries. Global demandfor gold jewellery declined by 22% relative to the same

period in 2008. The decline was slightly less pronounced

in $US value terms; demand dropped 20% to just under

$US12bn. In the year to the end of June, demand was

down just 2% in $US value terms relative to the previous

12-month period. The two most important factors weighing

on demand were the high gold price and the ongoing

global recession.

Although the international price of gold did not quite

regain the highs reached during the first quarter, the factthat it remained very close to these levels for much of

the period resulted in a higher average quarterly price.

Indeed, the Q2 2009 average price of $US922.18 was the

second highest on record, only 0.3% below the average for

Q1 2008, during which time the price hit record levels of

above $US1,000/oz.

The high price was the over-riding factor affecting demand

in non-western markets, while the economic climate played

an important role in western markets. That being said,

although economic growth rates in key parts of the non-

western world are still healthy relative to the rates of decline

seen across much of the west, they are nevertheless

abating and fear of economic contagion, combined withuncertainty over how long the global crisis will last, also

helped to suppress demand in many of these economies.

Price expectations, as well as the actual price level, played

a key role in determining flows of demand and supply (i.e.

recycling activity) in a number of key markets during the

second quarter. In India and Turkey notably, it appears

that consumers were anticipating a retreat in the gold

price from prevailing high levels and this helps to explain

why gold demand was subdued - if expectations are for

lower prices, consumers will naturally respond to this witha wait and see approach, hoping to make their planned

purchases at more affordable levels.

The reduction in demand for gold jewellery was a global

story with just one exception; mainland China. Demand

here, in stark contrast to the overall decline of 22%,

increased by 6%. This was largely attributable to still

healthy rates of economic growth, stability in the local

currency and a raft of government measures aimed at

mitigating the impact of the global downturn. The increase

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Indian Rupees, rhsTurkish LiraEuro $US

Jul 09Jan-09Jul-08Jan-08Jul-07Jan-07Jul-06Jan-06Jul-05Jan-05Jul-04Jan-04

Chart 2: The five year daily gold price (per oz) in selected currencies

Source: WGC based on Global Insight data


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August 2009 5

in the value measure of demand is comparable; demand

was 6% higher at RMB14.7bn.

The picture for the rest of the Greater China region wasless positive, although Hong Kongs decline of 9% in

volume terms was significantly less severe than the global

average. The weakness was due to a combination of

concerns over swine flu, which resulted in fewer tourists

from the mainland, bad weather and the high gold price.

Jewellery off-take in Taiwan was down 21% on the levels of

a year earlier, reflecting difficult economic conditions.

Jewellery demand across the rest of East Asia was

driven primarily by the high gold price and consequently,

off-take declined sharply in each of the countries in thatregion. One of the weakest performers was Japan, which

witnessed a 29% decline as poor economic conditions

further discouraged consumers. In Thailand (-30%),

Indonesia (-21%) and Vietnam (-17%), dips in the gold

price elicited buying interest, but the generally high price

level that prevailed throughout the quarter kept a lid on

demand.

The largest decline in gold jewellery demand in a single

market was in Turkey, where off-take fell 54% relative to

year-earlier levels to 19.2 tonnes. The price of gold and

the expectation that the price will come down were the

primary reasons for the fall. In local currency terms, the

value measure of jewellery demand declined 42%.

Elsewhere in the Middle East, consumers reacted with

caution to the high price level and encroaching economic

downturn. The region as a whole posted a decline in

jewellery off-take of 17% and a country breakdown reveals

only a slight variation in the pace of decline. Demand in

Egypt was 15% down at 13.0 tonnes, while the UAE was

the weakest at -19%. The Other Gulf countries and Saudi

Arabia both recorded a decline of 17%.

The largest contribution to the global decline in jewellery

off-take was the 39 tonne (31%) drop in Indian demand.

Expressed in local currency value terms, demand declined

by a less severe 17% to Rs127bn. The sustained high gold

price deterred consumers, who chose to retain cash in

the bank and wait for an opportunity to buy at lower price

levels.

In the western industrialised countries, rising unemployment

and slowing economic growth combined with the high

gold price kept jewellery demand under pressure. The

US market continued to suffer from the effects of the

economic downturn, with rocketing unemployment being

a particular burden. Demand contracted by 19% to 27.5

tonnes, equivalent to a 17% drop in value terms. In Italy,

higher unemployment and tight credit conditions squeezed

private consumption. Gold jewellery demand suffered,

declining by 27% to just 8.2 tonnes. The decline in value

terms was less steep - the local currency measure of

demand fell by 14%. The 36% decline in Russian demand

was the second largest after Turkey. Off-take shrank to

a five-year low of 13.5 tonnes in response to falling real

wages, rising unemployment and tight lending conditions.

Q2 tonnage off-take in the UK declined by 22% to 5.6 tonnes.In local currency terms, demand rose 2% to 107mn,

continuing a trend that has seen the value of demand stay

relatively stable in the face of the economic downturn and

a high gold price. However, the fragile economic scenario

and high price level continued to impact on the volume

of demand, as borne out by hallmarking statistics. As in

several other markets, higher-carat jewellery was the most

resilient, emphasising the investment element of jewellery

purchases.

The outlook for jewellery demand over the remainder

of 2009 is uncertain, resting on the price level, price

expectations and economic conditions. The non-western

world is highly responsive to moves in the gold price

Chart 3: Gold demand,

tonnes

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Identifiableinvestment

JewelleryIndustrialand dental

Q1'09Q1'08Q1'07Q1'06Q1'05

Source: GFMS

Gold Demand Trends


6/24

August 2009 6

Gold Demand Trends

and any significant weakness could elicit strong waves

of pent-up demand from these markets. However, the

global economic scenario continues to loom large in the

background and is likely to temper demand in a number ofmarkets for some time to come.

Industrial and dentalGold demand for industrial and dental applications in

Q2 continued to suffer chiefly as a result of the severity

of the global economic downturn, falling 21% relative to

year-earlier levels to just 93.1 tonnes. Nonetheless, the

industrial segment did stage a quarter-on-quarter gain

of 18%. Electronics off-take, the largest component of

industrial demand, showed an improvement on the scaleof first quarter losses, dropping by 26% relative to Q2

2008 in comparison to the Q1 slump of 38%. Elsewhere,

demand for gold used in the other industrial & decorative

sectors was constrained to a 9% fall by a strong

performance in India, while dental demand continued its

secular decline, slipping 11%.

As outlined above, the electronics sector has only just

begun to show signs of emerging from the current slump

in production, with gold demand in Q2 remaining at six-

year lows. The scale of the 26% decline relative to year-

earlier levels, while better than the Q1 fall, continues

to illustrate the impact that the financial crisis has had

on consumer demand. It also highlights the low levels

of activity from the supply chain, due largely to the

oversupply of inventory last year, which until recently

largely negated the need for fresh fabrication on many

product lines.

According to the latest figures (May 2009 at the time

of writing) released from the Semiconductor Industry

Association (SIA), sales demand for semiconductors

year-to-date, while increasing moderately on a month-on-month basis, declined 27% relative to the same period

in 2008. That said, several industry analysts are now

suggesting that demand may have bottomed. Global

inventories of chips have declined to appropriate levels,

clearing the way for inventory rebuilding and higher sales

in the second half of the year.

The electronics industry, while apprehensive in claiming

the worst is over, believes it is now witnessing some

positive signs from individual segments of the market

and, while any increase will be gradual, production

rates should begin to improve in the next few quarters.

Indeed, many are forecasting improvements in off-take

in the seasonally strong second half of the year when

sales of personal computers and electronic devices

typically rise in a period spanning the back-to-school and

holiday shopping seasons. Moreover, a return in demand

for DRAM and NAND flash chips, used in computers andmemory storage areas, means that modest growth can

also be expected in this part of the sector.

Turning briefly to individual markets, the United States

recorded a significant decline of around a third relative

to Q2 2008, while Japan and Taiwan fell almost 30%. In

contrast, demand from China declined by less than 10%

as a result of more robust domestic demand.

Demand from the other industrial & decorative segment

recorded an increase relative to Q1 of almost 30%.However, relative to year-earlier levels, demand did not

perform as well, declining 9%. India, which typically

dominates the directional shift in this segment, was again

the catalyst for the rise relative to Q1, increasing over

300%. This left Indian demand unchanged relative to Q2

2008.

Interestingly, the stability recorded in India was an

isolated result, with almost all other regions recording

considerable declines. In Europe, both Switzerland and

Germany recorded double-digit declines on year-earlier

levels, while in East Asia, South Korea slipped by more

than 10% and Chinese demand fell almost as much.

The chief architect for the weakness in these markets

remains the reduction in gold potassium cyanide (GPC)

production (widely used in the plating of carat jewellery,

costume jewellery and luxury accessories). This highlights

how the economic crisis has played a significant role as

consumers limit discretionary spending.

Finally, gold used in dental applications is estimated to

have fallen by 11% relative to year-earlier levels, with

considerable falls recorded in the two largest markets,Japan and the United States. Substitution to alternative

materials such as ceramics (a more aesthetically

pleasing cosmetic option) or base metals (mainly cobalt/

chrome alloys) and more recently some shift to palladium,

remains the primary driver for the secular decline, with the

elevated gold price accelerating the pace of migration

during recent quarters.

InvestmentTotal identifiable investment in gold (excluding inferred

investment) during Q2 2009 totalled 222.4 tonnes, up

a strong 46% on the levels of a year earlier but below

the extreme highs experienced during the previous three


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August 2009 7

2007 2008 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2091

% ChQ209 vs

Q208

% ChYear on

Year2

Identifiable Investment 685.9 1183.0 170.7 151.9 420.1 440.2 600.0 222.4 46 133

Net Retail Investment 432.5 862.1 98.1 147.9 270.6 345.5 134.9 165.7 12 115

Bar Hoarding 236.5 391.8 49.4 92.2 126.4 123.9 -33.1 59.4 -36 19

Official Coin 137.0 191.3 28.6 36.5 61.8 64.4 72.9 59.2 62 105

Medals/Imitation Coin 72.6 69.6 10.7 14.5 25.0 19.4 2.4 8.3 -43 6

Other Identified Retail Invest.3 -13.6 209.3 9.3 4.7 57.4 137.9 92.7 38.7 720 1934

ETFs & Similar Products4 253.3 320.9 72.7 4.0 149.5 94.7 465.1 56.7 1315 159

"Inferred Investment"5

-76.0 -286.1 89.6 10.2 -353.0 -38.8 162.8 195.1 1657 -122

"Total" Investment 609.9 896.9 260.3 162.1 67.1 401.5 762.8 417.4 157 73

"Total Investment, $USm 14,395 24,550 7,740 4,672 1,880 10,259 22,279 12,376 165 86

quarters. In $US value terms, this represented a net inflow

in Q2 2009 of $6.6bn, up from $4.4bn a year earlier. The

main contributor to the reduced flows relative to Q1 was

EFT-related demand.

Net retail investment, which captures global bar and coin

demand, was up 23% relative to the previous quarter and

12% on the levels of Q2 2008. This rebound relative to

the previous quarter reflects a shift from net dishoarding

to positive net investment in non-western markets, partly

offset by a slowing in investor inflows in western markets.

Flows into gold exchange traded funds (ETFs) returned toa more moderate level of 56.7 tonnes after a phenomenal

Q1 that saw net inflows total 465.1 tonnes. As shown in the

chart on the following page, the US listed SPDR Gold

Shares (ticker symbol GLD), the worlds largest gold ETF,

experienced modest levels of redemptions during April

and although inflows resumed in mid-May, holdings as

at end-June remained below the levels of end-March. In

comparison, the other ETFs, in aggregate, experienced

modest inflows over course of the quarter.

The bar hoarding category, which largely represents

demand in non-western markets, totalled 59.4 tonnes

during Q2. While this was a marked improvement on

the net dishoarding of 33.1 tonnes that occurred the

previous quarter, it was significantly lower than the 92.2

tonne inflow experienced in Q2 2008. The improvement

relative to Q1 was largely driven by a 38 tonne turnaround

in India - from a net outflow of 17.0 tonnes in Q1 2009 to

a net inflow of 21.0 tonnes in Q2. Elsewhere, the trend

was generally a worsening one, with a larger number of

countries witnessing dishoarding than in Q1, including

Japan, Indonesia, South Korea, Thailand and the Other

Gulf countries. However, the absolute magnitude of the

dishoarding was generally very small.

The other identified retail investment category, whichlargely captures the western markets, jumped to 38.7

tonnes in Q2 2009 from just 4.7 tonnes a year earlier.

Net demand weakened significantly from the extremely

high levels seen during the peak of the credit crisis,

but remained well above historical norms. In fact, Q2

represents the fourth highest quarter on record, with the

quarters Q3 2008 to Q1 2009 accounting for the top three

places.

Germany held its position as the country with the largest

net inflows, totalling 28.0 tonnes compared to just 5.2

tonnes a year earlier. This was followed by the US and

Switzerland with a net 23.0 tonnes and 22.0 tonnes

respectively.

Table 3: Investment demand (tonnes except where specified)

Source: GFMS. Data in this table are consistent with those published by GFMS but adapted to WGCs presentation and take account of the additional

demand data now available. The inferred investment figure differs from the implied net (dis)investment figure in GFMS supply and demand table

as it excludes ETFs and similar and other retail investment. 1. Provisional. 2. Percentage change, 12 months ended June 2009 vs 12 months

ended June 2008. 3. Other retail excludes primary coin offtake; it represents mainly activity in North America and Western Europe. 4. Exchange

Traded Funds and similar products including: Gold Bullion Securities, (London) , Gold Bullion Securities (Australia), SPDR Gold Shares (formerly

streetTRACKS Gold Shares), NewGold Gold Debentures, iShares Comex Gold Trust, ZKB Gold ETF, GOLDIST, ETF Securities Physical Gold, XETRA-

GOLD, Julius Baer Physical Gold, Central Fund of Canada, and Central Gold Trust. 5. This is the residual from combining all the other data in the

table. It includes institutional investment other than ETFs & similar, stock movements and other elements as well as any residual error. In previous

editions of GDT it was referred to as the balance.

Gold Demand Trends


8/24

August 2009 8

Gold Demand Trends

Official coin demand followed a similar pattern to other

identified retail investment. Demand totalled 59.2 tonnes

in Q2, below the 72.9 tonnes recorded the previous

quarter but nevertheless a significant improvement on just 36.5 tonnes a year earlier. While shortages appear

to have eased somewhat, pockets of strong activity

continue to exist. The UKs Royal Mint recently revealed

that it doubled production of gold coins in Q2 although

their sales are relatively modest in absolute terms.

The inferred investment category, which is the

balancing item in the supply and demand table,

experienced significant net inflows during the quarter

of 195.1 tonnes. While this category is partly an error

term, its more important role is to capture the less visiblepart of investment demand. This figure has traditionally

captured the more speculative side of the gold market.

Given the recent early signs of recovery in key economies

and a corresponding move by investors back into risky

assets, it would be easy (but wrong) to assume that the

net inflows in the inferred investment category reflect a

build-up of speculative long positions. In fact, investors

remain wary of counterparty risk and have shifted away

from unallocated gold accounts into allocated accounts.

Increased demand for allocated gold accounts represents

a significant proportion of the net inflows in the inferred

investment category.

Total investment, which includes both identifiable

investment and inferred investment, rose from 162.1

tonnes in Q2 2008 to 417.4 tonnes in Q2 2009, an

increase of 157%. In $US value terms, the increasebetween the two quarters totalled $7.7bn. While the level

of total investment in Q2 was below that seen in Q1, it was

broadly on par with the high levels experienced during Q4

2008 in the aftermath of the Lehman Brothers collapse.

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'GLD'Other funds

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Chart 4: Holdings in Exchange Traded Funds,tonnes and the gold price, Jan 06 - Jul 09

Source: www.exchangetradedgold.com; Global Insight


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August 2009 9

2007 2008 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'091 % ChQ209 vs

Q208

% ChYear on

Year2

Supply

Mine Production 2,478 2,414 544 589 634 648 582 622 6 3

Net Producer Hedging -444 -350 -129 -121 -53 -46 -3 -16 ... ...

Total Mine Supply 2,034 2,064 415 467 580 602 579 606 30 18

Official Sector Sales3 484 236 77 69 77 13 52 -14 ... -69

Recycled Gold 958 1,212 359 276 216 361 566 334 21 31

Total Supply 3,476 3,512 851 812 874 975 1,197 927 14 12

Demand

Fabrication

Jewellery 2,404 2,186 475 532 695 484 355 416 -22 -8

Industrial & Dental 462 436 116 118 112 90 79 93 -21 -19

Sub-Total Above Fabrication 2,866 2,621 591 650 807 574 434 509 -22 -10

Bar & Coin Retail Investment4 446 653 89 143 213 208 42 127 -11 44

Other Retail Investment -14 209 9 5 57 138 93 39 720 1934

ETFs & Similar 253 321 73 4 149 95 465 57 1315 159

Total Demand 3,552 3,804 762 802 1,227 1,014 1,034 731 -9 21

"Inferred Investment"5 -76 -292 90 10 -353 -39 163 195 1815 -114

London PM Fix ($US/oz) 695.39 871.96 924.83 896.29 871.60 794.76 908.41 922.18 3 6

SupplyTable 4: Gold supply and demand (WGC presentation)

Note: Jewellery data in this table refer to fabrication not consumption and quarterly data differ from the data inTables 1 and 2.

Source: GFMS. Data in this table are consistent with those published by GFMS but adapted to the WGCs presentation and take account of the

additional demand data now available. The inferred investment figure differs from the implied net (dis)investment figure in GFMS supply and

demand table as it excludes ETFs and similar and other retail investment. 1. Provisional. 2. Percentage change, 12 months ended June 2009 vs

12 months ended June 2008. 3. Excluding any delta hedging of central bank options. 4. Equal to net retail investment from Table 1 less the 'other

identified retail investment' category. 5. This is the residual from combining all the other data in the table. It includes institutional investment other

than ETFs & similar, stock movements and other elements as well as any residual error. In previous editions of GDT it was referred to as the

balance.

Total supply fell away in Q2 after the previous quartersspike, but remained firm relative to Q2 2008. At 926.5

tonnes, the total supply of gold was 14% above year-

earlier levels, with the largest contribution coming from

a sharp slowdown in producer de-hedging. Recycling

activity eased back towards more normal levels following

the dramatic surge experienced in the first quarter,

although at 334.2 tonnes this element of supply was still

21% ahead of Q2 2008. Turning to the official sector, the

numbers show that central banks became net buyers of

gold in the second quarter. However, the data require a

certain amount of qualification as due to GFMSs chosen

statistical treatment the 35 tonne sale by the ECB that

took effect during the second quarter was registered in

Q1 GDT data. This is discussed in more detail below.

The negative contribution to supply from producer de-hedging was slightly greater than the first quarters

negligible levels, but sharply lower than in the second

quarter last year. The de-hedging phenomenon of the last

few years has now largely played out and the constraining

impact on supply has all but disappeared.

Provisional figures for mine production suggest that this

element of supply was 6% higher than year-earlier levels

at 621.9 tonnes. A country-by-country breakdown of this

number reveals significant increases in Indonesia (+21

tonnes, due largely to a 17 tonne increase in output at

Grasberg and upgrading at Batu Hijau) and China, where

industry consolidation and the resultant increase in

efficiency led to a 9 tonne increase in production. Russia

Gold Demand Trends


10/24

August 2009 10

Gold Demand Trends

recorded a 6 tonne increase, 4 tonnes of which was

attributable to increased production at Kupol. Elsewhere,

Q2 production levels in North America and Canada

were slightly lower than year-earlier levels. South Africarecorded a decline of 4 tonnes, but increases in other

African countries cancelled out this decrease so that the

African continent as a whole was relatively flat. A number

of new mines (around 13) began producing gold during

the second quarter of 2009, which contributed around 13

tonnes to total supply.

The data show net central bank buying of 14 tonnes in

Q2. As explained above, this is the result of the inclusion

of the ECBs 35 tonne sale in the previous quarters data.

In accordance with GFMS methodology, ECB forwardsales are accounted in the statistics in the month during

which they are announced rather than the month in which

they are settled. As the completion of the latest 35 tonne

sale was announced at the end of March, but did not

formally appear in the IMF data until April, the sale was

recorded in Q1 2009 rather than Q2.

On this occasion, therefore, it is more meaningful to

look at half-yearly net official sector sales. Net sales in

the first half of 2009 amounted to just 38.7 tonnes, the

lowest half-yearly figure since H1 1997, when net sales

were 38.0 tonnes and 73% down on net sales of 145.8

tonnes in H1 2008. As illustrated in Chart 5, central

banks outside of the CBGA have been net purchasers

since the second half of 2006 and gross purchases of

almost 30 tonnes were recorded among central banks

outside of the Central Bank Gold Agreement during Q2

2009. Although confidentiality issues prevent a detailed

dissection of the numbers, it is worth noting that these

purchases comprise modest net additions in a number of

countries rather than large purchases by just one or two

countries.

As China announced its 75% increase in gold reserves

during the second quarter, while the pace of sales under

the current Central Bank Gold Agreement have slowed

notably in recent months, the pattern of activity in this

element of supply is likely to change somewhat.

The renewal of the Central Bank Gold Agreement for a

third term was announced in early August. The ceiling on

sales under CBGA3 was reduced to 400 tonnes per year

from the previous 500 tonnes per year. While the IMF is

not a formal signatory, an IMF official stated in late July

that the planned sale of 403 tonnes of gold will occur

over 2-3 years, within the structure of the new agreement.

The sales must still be ratified by IMF member countries.

Turning to recycling activity, the data show that the supply

of recycled gold coming onto the market in Q2 was

markedly lower than the record levels seen the previous

quarter, during which time a flood of recycled gold was

triggered by record prices in a number of markets.

Consequently, much of the near-market supply of

gold appears to have been flushed out, suggesting that

another sharp rise in the price would be required to tempt

consumers into recycling any of their remaining holdings.

In a historical context, 334.2 tonnes is still a reasonably

strong number and compares with 276.1 tonnes in the

same period of 2008. A more meaningful comparison

would be with Q1 2008, when the average gold price wascomparable (just 0.3% higher) and the supply of recycled

gold reached 359.0 tonnes. On this basis, recycled gold

declined 7% over a period during which prices barely

changed. This suggests that the price will need to rise

further to tempt another wave of recycling activity.

The 21% increase in recycling relative to year-earlier

levels can be explained by both the higher price level and

the deterioration in the global economy over that period.

In non-western markets, the high price attracted some

profit-taking, while western consumers were reacting to

their strained economic circumstances by cashing in on

their holdings a continuation of the distress selling that

we identified in the first quarter of 2009.

-100

0

100

200

300

400

500

-100

0

100

200

300

400

500

Non-CBGA sales / purchasesCBGA sales

H1'09H1'08H1'07H1'06H1'05H1'04H1'03H1'02

Chart 5: Supply from net central

bank sales in tonnes

Source: GFMS, IMF, WGC


11/24

August 2009 11

2008 Q2 2008 Q2 20091 % Ch Q2 2009 vs Q2 2008

Jewellery Net Retailinvest.

Total Total Jewellery Net Retailinvest.

Total Jewellery Net Retailinvest.

Total

India 501.6 211.0 712.6 175.1 88.0 21.0 109.0 -31 -56 -38

Greater China 355.9 75.7 431.6 89.9 78.7 18.9 97.6 4 35 9

China 326.7 65.9 392.7 80.4 72.5 17.1 89.6 6 47 11

Hong Kong 17.0 1.0 18.0 4.3 3.7 0.3 3.9 -9 -11 -9

Taiwan 12.2 8.7 20.9 5.2 2.6 1.5 4.1 -21 -25 -23

Japan 28.2 -39.4 -11.2 -4.8 5.2 -1.1 4.1 -29 ... ...

Indonesia 55.9 2.9 58.7 13.9 10.3 -1.8 8.5 -21 ... -39

South Korea 24.8 1.2 26.0 5.1 4.1 -0.8 3.3 -15 ... -35Thailand 16.3 42.7 59.0 14.8 3.5 -5.2 -1.7 -30 ... ...

Vietnam 19.6 96.2 115.8 37.0 3.9 19.0 22.9 -17 -41 -38

Middle East 317.9 28.4 346.4 87.4 67.7 3.8 71.5 -17 -31 -18

Saudi Arabia 108.9 13.5 122.4 35.9 28.0 1.8 29.8 -17 -18 -17

Egypt 74.3 2.5 76.8 15.8 13.0 0.3 13.2 -15 -44 -16

UAE 100.0 9.5 109.5 26.6 19.7 1.8 21.5 -19 -20 -19

Other Gulf 34.8 2.9 37.7 9.2 7.1 0.0 7.1 -17 ... -23

Turkey 153.2 57.1 210.3 58.1 19.2 17.4 36.6 -54 8 -37

Russia2 91.4 ... 91.4 21.1 13.5 ... 13.5 -36 ... -36

USA 188.1 78.9 267.0 46.0 27.5 23.0 50.6 -19 91 10

Italy2

50.3 ... 50.3 11.2 8.2 ... 8.2 -27 ... -27UK2 37.2 ... 37.2 7.2 5.6 ... 5.6 -22 .. -22

Europe ex CIS3 ... 242.7 242.7 9.1 ... 64.6 64.6 ... 607 607

France ... -3.1 -3.1 -3.0 ... 0.9 0.9 ... ... ...

Germany ... 114.8 114.8 5.2 ... 28.0 28.0 ... 440 440

Switzerland ... 89.0 89.0 5.2 ... 22.0 22.0 ... 323 323

Other Europe ... 42.0 42.0 1.8 ... 13.7 13.7 ... 681 681

Total Above 1,840.4 797.3 2637.7 571.0 335.2 158.9 494.1 -23 17 -13

Other 345.5 64.8 410.3 94.6 68.8 6.8 75.6 -17 -43 -20

World Total 2,185.8 862.1 3048.0 665.7 404.1 165.7 569.7 -22 12 -14

Consumer Demand1 Trends In Individual CountriesTable 5: Consumer demand in selected countries: Q2 2009 (tonnes)

Source: GFMS. 1. Provisional. 2. Jewellery only. 3. Net retail investment only.

IndiaSecond quarter gold demand in India recovered from the

exceptionally weak level witnessed in the previous quarter,

but remained well below that of Q2 2008. Total gold off-

take declined 38%, with jewellery, the largest component

of demand, falling 31%. In local currency terms, the value

of gold demand fell 25% from Rs210bn to Rs157bn, with

jewellery off-take recording a fall of 17%.

The local gold price hovered at near record highs

during the quarter and the domestic economy remained

under pressure from the global recession. The pace of

economic growth is expected to slow to around 6% during

the current fiscal year, which would be the slowest rate

since 2003. Nevertheless, growth rates in India remain far

above those of most developed economies and activity is

forecast to gather pace again in 2010/11.

Although the local gold price stayed below the record

highs recorded in the first quarter, it remained very high

on a historical basis, fluctuating in a relatively narrow

band between Rs14,000/10g and Rs15,000/10g for most

1 Consumer demand is gold bought by individuals i.e. as jewellery and net retail investment. Unless otherwise specified all data in this section refer

to tonnage figures and growth rates are comparisons with the same period of the previous year.

Gold Demand Trends


12/24

August 2009 12

Gold Demand Trends

of the quarter. The reasons that consumers have been

discouraged by these prices are two-fold: firstly, the high

prices make gold less affordable, particularly given a

backdrop of domestic slowdown and global recession;and secondly, the fact that the price has been in a fairly

flat sideways pattern has discouraged demand. Both

consumers and wholesalers appear to be waiting on

the sidelines for more sizeable dips to provide a more

attractive buying opportunity.

This marks something of a change for Indian demand.

Historically, following a period of volatility in the gold

price, demand has returned again once the price has

stabilised, even if the price has established a new floor at

higher levels. However, taken in the context of record highprices and the worst global recession for generations,

consumers and investors have been hesitant to return

to the market. Anecdotal evidence suggests that there is

considerable pent-up demand that could potentially be

unleashed at lower prices. Furthermore, data show that

in the 12 months to end-June 2009, bank deposits grew

by 22% year-on-year. This suggests that consumers have

preferred to stay invested in cash because of the economic

downturn and gold price volatility and have a pool of

readily-available funds that could be directed towards

purchases of gold jewellery should the price weaken.

Any dips in the price below the stubborn Rs14,000/10g

level would be likely to encourage consumers back to

the market. In the meantime, it seems that consumers, to

some extent, continued to meet their demand for jewellery

by means of exchange, whether through exchanging old

items for new or through the melting down and re-making

of old pieces.

Below-average rainfall during Indias monsoon season,

which began in June, was a further deterrent to gold

demand towards the end of the quarter as the rural

population is heavily dependent on a good monsoonseason to boost their agricultural incomes. Two-thirds

of Indias population rely either directly or indirectly on

the agricultural sector, which accounts for around 18%

of GDP. June was the driest month in over 80 years, and

this is likely to curb rural consumption and could therefore

constrain the projected recovery in GDP growth.

Demand for gold jewellery during the important Akshaya

Thritaya festival in late April was 7% down on the previous

year in volume terms, equivalent to an increase of 14% in

value terms. It is worth bearing in mind that local prices

rose by 25% over that period and that the 2008 AT, with

which the comparison is being made, was a two-day

festival.

Looking at retail investment, demand for gold returned

to positive levels from the dishoarding (mainly by

wholesalers) seen during the first quarter, but was

nevertheless weak in comparison to year-earlier levels.

Demand for bars and coins, at 21.0 tonnes, was less than

half the 48.1 tonnes recorded in Q2 2008. Wholesalers

undertook further de-stocking (which is encompassed

in the retail investment numbers) following the record

outflows seen in Q1, which contributed to relatively high

gold export numbers in the second quar ter. Coin demand

fared better than that for small bars, but this largely

reflected a one-off and sizeable order from a publicsector company for distribution to its employees.

Given the strong cultural affinity to gold in India and the

considerable profit-taking by investors and consumers

and de-stocking by the trade that has occurred over

recent quarters, there is potential for a strong recovery

in demand at some stage. However, its timing depends

to a large degree on movements in the local gold price,

and in turn, on fluctuations in the local exchange rate.

There has been evidence in recent weeks of buying

interest emerging as the price approaches the recent

floor at around Rs14,000/10g and the upcoming Diwali

festival and wedding season should help to underpin

a seasonal improvement over the remainder of 2009.

Chart 6: Indian gold demand (4-quarter

moving average) and the rupee gold price

0

30

60

90

120

150

180

4000

6000

8000

10000

12000

14000

16000

Price, Rs/10gValueTonnes,Q1 2004=100

Q1'09Q1'08Q1'07Q1'06Q1'05Q1'04

Source: GFMS, Global Insight, WGC


13/24

August 2009 13

2008 Q2 2008 Q2 20091

% Ch Q2 2009 vs Q2 2008Jewellery Net Retail

invest.Total Total Jewellery Net Retail

invest.Total Jewellery Net Retail

invest.Total

India 14,014 5,883 19,896 5,046 2,609 623 3,232 -29 -55 -36

Greater China 9,964 2,115 12,079 2,591 2,334 560 2,894 7 39 12

China 9,148 1,844 10,992 2,317 2,150 508 2,658 9 51 15

Hong Kong 476 29 504 123 108 7 116 -6 -8 -6

Taiwan 340 242 582 151 76 44 120 -19 -23 -20

Japan 792 -1,230 -438 -138 154 -33 122 -27 ... ...

Indonesia 1,575 80 1,656 401 304 -53 251 -19 ... -37

South Korea 691 34 724 146 122 -24 98 -12 ... -33

Thailand 464 1,156 1,620 425 103 -153 -50 -28 ... -112

Vietnam 551 2,747 3,298 1,065 114 563 677 -15 -39 -36

Middle East 8,926 786 9,712 2,519 2,008 112 2,120 -15 -29 -16

Saudi Arabia 3,068 367 3,435 1,035 829 53 882 -15 -16 -15

Egypt 2,078 71 2,149 454 385 7 392 -13 -43 -14

UAE 2,804 267 3,071 767 584 52 636 -17 -18 -17

Other Gulf 976 81 1,057 264 211 -1 210 -14 ... -21

Turkey 4,333 1,623 5,957 1,673 568 517 1,085 -53 12 -35

Russia2 2,548 ... 2,548 608 400 ... 400 -34 ... -34

USA 5,198 2,144 7,343 1,326 816 683 1,499 -17 96 13

Italy2 1,372 ... 1,372 323 242 ... 242 -25 ... -25

UK2 1,011 ... 1,011 207 166 ... 166 -20 ... -20

Europe ex CIS3 ... 6,462 6,462 263 ... 1,915 1,915 ... 627 627

France ... -106 -106 -86 ... 27 27 ... ... ...

Germany ... 3,067 3,067 149 ... 830 830 ... 455 455

Switzerland ... 2,390 2,390 150 ... 652 652 ... 335 335

Other Europe ... 1,111 1,111 51 ... 406 406 ... 703 703

Total Above 51,440 21,800 73,240 16,455 9,940 4,710 14,650 -21 20 -11

Other 9,676 1,792 11,467 2,727 2,040 202 2,242 -14 -41 -18

World Total 61,116 23,591 84,707 19,182 11,980 4,912 16,892 -20 15 -12

Consumer confidence improved following the electionand budget, which announced significant government

investment. It remains to be seen whether the doubling of

the import tax on gold, imposed in July, hinders demand,

although given that the additional tax represents a small

percentage increase in the price, we expect the impact

to be small.

Greater ChinaGold demand in Greater China in Q2 was up 9% on the

levels of Q2 2008, equivalent to a 12% rise in $US value

terms. Net retail investment was up a very strong 35% on

year-earlier levels, while jewellery demand posted a more

modest 4% rise. In both cases, the gains were attributable

to ongoing strength in demand in mainland China, partlyoffset by weakness in Taiwan and Hong Kong.

Mainland China proved to be the most resilient of the

global jewellery markets. Its 6% rise relative to year-

earlier levels, while modest in absolute terms, stands out

in comparison to the 26% decline recorded across the

remainder of the world (excluding China). The relative

stability of Chinas currency and its economy have been

instrumental in underpinning jewellery demand. The

average RMB price rose just 1% between Q2 2008 and

Q2 2009.

The 24 carat market once again showed the most

resilience, with jewellery buyers seeking to maximise the

Table 6: Consumer demand in selected countries: Q2 2009 (value, $USm)


Gold Demand Trends


14/24

August 2009 14

Gold Demand Trends

store-of-value component in their purchases. In contrast,demand for the 18 carat segment, which has a higher

design element, higher cost component and higher mark-

up and sells by piece rather than by weight (unlike the

traditional 24 carat product) has eased. The weakness

in demand for 18 carat product is also attributable

to a shift in consumer preferences towards platinum,

which has benefited from a price fall at the retail level

of approximately 40% this year. Notably, the lighter and

more design-oriented 24 carat jewellery, which also has

a higher cost component and tends to sell by weight, has

not suffered the same weakness.

While the pace of economic growth has slowed

considerably from the pace of several years ago, both

real and nominal GDP growth remain healthy. A surge inlending by state banks has helped cushion the effects

of the global credit squeeze, while aggressive fiscal and

monetary stimulus have underpinned domestic activity

and helped offset significant declines in export volumes.

Retail sales in the first half of the year rose 15% on the

levels of a year earlier.

Q2 retail investment demand in mainland China was up

47% on the levels of a year earlier. Dips in the gold price

towards $900/oz attracted fresh demand as well as lower

levels of selling-back. Bar and coin demand benefited

from a continued development of new products and

improved availability of, and access to, these products

for investors. An increasing number of local banks have

Year Ended Q2 2008 Year Ended Q2 20091

% Ch Y/E Q2 2009 vs Y/E Q2 2008Jewellery Net Retail

Invest.Total Jewellery Net Retail

invest.Total Jewellery Net Retail

invest.Total

India 387.9 164.8 552.7 423.9 133.2 557.1 9 -19 1

Greater China 341.5 49.4 390.9 366.5 80.1 446.6 7 62 14

China 310.9 40.4 351.4 338.5 70.8 409.3 9 75 16

Hong Kong 17.9 1.0 18.9 17.0 1.0 18.0 -5 -1 -5

Taiwan 12.7 7.9 20.6 11.0 8.4 19.4 -13 6 -6

Japan 29.9 -82.3 -52.4 25.4 9.9 35.3 -15 ... ...

Indonesia 54.6 1.2 55.8 49.7 -6.7 43.0 -9 ... -23

South Korea 26.8 1.2 27.9 22.9 0.1 23.0 -14 -91 -18

Thailand 16.9 0.9 17.7 12.8 10.8 23.6 -24 1,142 33

Vietnam 19.9 95.6 115.5 18.2 54.8 73.0 -8 -43 -37

Middle East 302.5 21.0 323.5 286.7 25.4 312.1 -5 21 -4

Saudi Arabia 105.3 8.1 113.4 98.7 13.3 111.9 -6 64 -1

Egypt 72.1 2.1 74.3 69.3 1.2 70.5 -4 -44 -5

UAE 90.1 8.2 98.3 88.0 8.8 96.8 -2 7 -2

Other Gulf 35.1 2.6 37.6 30.8 2.2 33.0 -12 ... -12

Turkey 174.2 48.6 222.8 119.3 54.3 173.6 -31 12 -22

Russia2 90.6 ... 90.6 78.6 ... 78.6 -13 ... -13

USA 231.7 31.5 263.2 169.9 112.4 282.4 -27 257 7

Italy2 56.5 ... 56.5 45.3 ... 45.3 -20 ... -20

UK2 46.7 ... 46.7 34.1 ... 34.1 -27 ... -27

Europe ex CIS3 ... 48.4 48.4 ... 403.1 403.1 ... 733 733

France ... -16.6 -16.6 ... 5.8 5.8 ... ... ...

Germany ... 37.9 37.9 ... 184.8 184.8 ... 387 387

Switzerland ... 20.5 20.5 ... 137.7 137.7 ... 572 572

Other Europe ... 6.5 6.5 ... 74.8 74.8 ... 1,044 1,044

Total Above 1,779.6 380.1 2,159.7 1,653.3 877.5 2,530.8 -7 131 17

Other 360.5 45.8 406.4 317.2 38.8 356.0 -12 -15 -12

World Total 2,140.1 426.0 2,566.1 1,970.5 916.3 2,886.9 -8 115 13

Table 7: Consumer demand in selected countries: four quarter totals (tonnes)



15/24

August 2009 15

started to offer physical gold and more companies are

offering investment bars with two way trading. China

Gold Shanghai branch launched a new gold investment

product this quarter - a China Gold Wealth Bar - whichattracted healthy demand.

Jewellery demand in Hong Kong was unable to maintain

the positive rates of growth that it experienced last

quarter, although it continued to outperform the global

average. Tonnage off-take in Q2 was down 9% on the

levels of a year earlier compared to a decline globally

of 22%. The weakness was partly attributable to lower

purchases by mainland residents, who were reluctant to

travel across the border due to the swine flu outbreak. Flu

concerns also impacted on visitor numbers during MaysLabour Day holiday. Heavy rains in June discouraged

local residents from shopping, further dampening sales.

Net retail investment in Q2 in Hong Kong was down

11% on the levels of a year earlier. Improved sentiment

in the stockmarket and the high levels of the gold price

dampened investor demand, although fresh interest

emerged on price dips towards $US900/oz.

In Taiwan, jewellery off-take was down 21% on the levels

of a year earlier, broadly on par with the global average.

Key players are spending lower than normal amounts on

promotion at a time when spending on luxury consumer

items is already struggling due to difficult economic

conditions.

Net retail investment, at 1.5 tonnes, was down 25% on

the levels of Q2 2008. The gold passbooks offered by

the Bank of Taiwan have remained popular, with 20,000-

30,000 new accounts opening monthly. Sales in Q2 were

up 12% on last years levels, although this represented a

5% fall relative to the previous quarter. Consistent with the

trend in Hong Kong, pockets of demand were evident ondips in the gold price back towards $US900/oz.

Looking ahead to Q3, the softness in Chinas 18 carat

segment is likely to continue. Consumers are expected

to favour the purer 24 carat product, being a closer

investment proxy. The third quarter is also a seasonal low

for this product. The prospects for investment demand

are mixed. The gold price and sharemarket conditions are

likely to remain key determinants. Buyers are expected to

emerge on dips towards $900/oz but weaken again on

bouts of price strength.

In Taiwan, Q3 marks a seasonal high in jewellery sales

due to the two-month summer vacation and high levels

of demand from students. Some recovery of sales to

Chinese tourists is also possible relative to Q2 due to

more friendly policies across the strait. However, it will be

difficult for sales to achieve the very high levels seen inQ3 2008, particularly in the current environment of high

gold prices and ongoing economic uncertainty.

Other East AsiaTotal tonnage of f-take in Japan in Q2 2009, at 4.1 tonnes,

was below the level of the previous quarter but easily

surpassed the net negative demand of 4.8 tonnes seen

in Q2 2008.

Economic activity contracted 15.2% in annualised termsin the March quarter following a broadly similar decline the

previous quarter. Weak economic conditions and a rise

in the gold price took their toll on consumer confidence

and purchasing power. Jewellery off-take in Q2 was down

29% on year-earlier levels, slightly worse than the 22%

global decline. In local currency terms, the decline was

slightly larger at 32%.

The last two quarters have seen small levels of net

disinvestment of around 1.0 tonne each, a significant

improvement relative to the sizeable net outflows

experienced between early 2006 and Q3 2008. While

there was a large positive inflow of 20.0 tonnes in Q4 2008,

this should be viewed as a one-off response to a series

of extreme events in the global financial industry. Notably,

this large inflow has so far shown no signs of reversing,

despite brisk two-way activity during the quarter.

The local economy is widely believed to have turned

the corner, with positive growth expected for the June

quarter. However, the turnaround is being driven by

government spending and a tailing-off of a cycle of

inventory adjustment and consumer confidence remainsfragile. Consequently, it is likely that jewellery demand will

remain weak for at least the next few quarters.

Total consumer demand for gold in Vietnam was down

38% from year-earlier levels. Jewellery off-take posted a

17% decline, while net retail investment declined 41%.

While the 17% decline in jewellery off-take is less severe

than the global decline of 22%, Q2 2008 was a weak

quarter. The absolute level of demand in Q2 2009, at

3.9 tonnes, remained at very low levels. Consumers are

sensitive to changes in the gold price, and this sensitivity

has been heightened by weakness in the local currency

over the last year. Brisk activity was noted in April when

Gold Demand Trends


16/24


17/24

August 2009 17

occurring for some time, but has recently started to occur

in the rural regions rather than just the urban centres.

Investor dishoarding continued in the June quarter,although at 1.8 tonnes, it was less severe than the 6.5

tonnes of dishoarding that occurred the previous quarter.

Buying and selling activity remained active on price

moves. A discount in the local gold price relative to the

international price on several occasions generated

export activity as local traders sought to take advantage

of arbitrage opportunities.

Thailand was in the unique position in Q2 of recording

negative total off-take as 5.2 tonnes of investor

dishoarding more than offset 3.5 tonnes of jewellerydemand. Similar to many other parts of the Asia, lively

two-way activity was present. Strong buying was reported

on dips towards $US900/oz, but this was more than offset

by profit-taking at higher prices. This profit-taking motive

has been underpinned over the last year by weakness in

the local currency, which has pushed up the gold price in

local currency terms.

The jewellery sector also experienced bursts of buying

activity on price dips, but demand dried up as the gold

price returned to higher levels. The most resilient part of

the market has been plain 23-carat jewellery, reflecting its

close proxy as an investment vehicle. Correspondingly,

demand for stone set jewellery has been weak.

The outlook for gold demand in East Asia is similar to

that in many other parts of the non-western world, being

largely price-dependent.

Middle East and Turkey

Middle EastTotal demand for gold in the Middle East region fell by

18% in Q2 2009 compared with the same period last year.

The investment component of demand was the worst

affected, sliding 31% to 3.8 tonnes, the lowest level for

three and a half years. Jewellery, the largest component

of total off-take, was 17% below Q2 2008 levels at 67.7

tonnes. In value terms, Q2 demand came in at $US2.1bn,

which represented a fall of 16% relative to Q2 2008.

Looking at the four-quarter rolling data, demand during

the 12 months to end-June 2009 was 4% lower in volume

terms than the corresponding period a year earlier.

Expressed in $US value terms, this equates to a rise of

3%.

Total consumer off-take in the UAE was 19% below year-

earlier levels. Both components of demand registered

declines of a similar magnitude: jewellery demand was

19% lower at 19.7 tonnes, while retail investment fell 20% to1.8 tonnes. Declining tourist numbers, the high gold price

and the global economic downturn hampered demand

for jewellery. The 18 and 21 carat segments of the market,

which have traditionally been dominated by tourists and

expatriates, were the worst affected. Traditional pre-

vacation jewellery gift purchasing had a diminished

impact as consumers chose to defer purchases until the

global financial crisis shows signs of improving.

It was a similar situation in Saudi Arabia, where jewellery

and retail investment demand declined by 17% and 18%respectively. Jewellery demand amounted to 28.0 tonnes

(compared with 33.7 in Q2 2008) as near-record prices

discouraged consumers. Demand appeared to vary by

region, with demand in the central region experiencing

the sharpest decline, while demand in the eastern region

was relatively stable.

Consumers in Egypt were also deterred by high average

prices in the second quarter, preferring to exchange

old jewellery for new pieces rather than buy new pieces

outright. Domestic economic growth slowed in response

to the global downturn and declining tourist numbers.

Although forecast GDP growth of around 4.5% in fiscal

year 2008/09 is very robust by global standards, it

nevertheless represents a notable weakening relative to

the average growth rate experienced during recent years

of around 7%.

Retail investment demand across the region suffered as

prices remained close to previous record levels, which

encouraged some investors to cash in on their existing

holdings of bars and coins. In the Other Gulf region,

investment demand turned very slightly negative (-0.03tonnes) the first time selling back has outweighed new

investment purchases since 2000. Meanwhile, Saudi

Arabia posted the weakest second quarter in investment

demand for five years as the profit-taking motive came

to the fore. Investment demand remained positive in the

UAE, but well down on the levels of a year earlier. Egypt

posted the largest decline down 44% to just 0.3 tonnes.

The outlook for the third quarter is mixed. In Saudi Arabia,

there is some optimism that the wedding season will spur

demand. However, demand across the entire region will

depend to a large extent on the direction of the gold price

and any improvement or otherwise in the state of the

global economy.

Gold Demand Trends


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Gold Demand Trends

TurkeyQ2 gold demand in Turkey recovered from the depressed

levels seen in Q1, but was nevertheless significantly

weaker than year-earlier levels. Total volume demandcame in at 36.6 tonnes, down 37% down on the levels

of Q2 2008. In local currency terms, this translated to

a decline of 19% to YTL1.7bn. The drop in consumer

demand was entirely accounted for by weakness on the

jewellery side, where demand was less than half the level

of Q2 2008. Retail investment demand, on the other hand,

exceeded year-earlier levels by 8%.

The jewellery market had some difficult circumstances

to contend with. While the gold price edged lower in

local currency terms during the course of the quarter,this followed two consecutive quarters of significant

price rises due to a depreciation of the local currency.

The average gold price was 28% higher than in Q2 2008.

Unemployment is high and economic growth has suffered

as a result of reduced bank lending and weak external

demand. The domestic economy is expected to shrink by

around 5% in 2009, although a moderate improvement is

forecast towards the end of the year. These economic and

price factors saw jewellery demand decline 54% between

Q2 2008 and Q2 2009 to 19.2 tonnes. The value measure

of demand recorded a 42% decline to YTL891mn.

Notably, the supply of recycled gold all but dried up

during the quarter, amounting to just 12 tonnes compared

with 124 tonnes the previous quarter. Anecdotal evidence

suggests that there has been a pick-up in exchangeactivity (i.e. exchange of old gold jewellery for new)

during the quarter as a way of meeting demand for

gold jewellery without requiring the consumer to pay the

prevailing high prices.

Retail investment demand compared favourably with Q2

2008 levels, rising 8% to 17.4 tonnes. Expressed in local

currency terms, this translates to a 39% rise in value to

YTL810mn. However, this increase largely reflects stock-

building activity by a number of banks, which accumulated

gold during the quarter. While a portion of this gold wassold into the market in the final weeks of the quarter, the

remainder equated to a net build-up of stocks, which is

represented in the retail investment numbers.

Looking forward, the prospects for gold demand are to

a large extent dependent on the direction of the gold

price and fluctuations in the lira, which has been under

downward pressure from significant interest rate cuts

designed to stimulate the economy.

USATotal gold of f-take in the US in Q2 2009 was 10% above the

levels of Q2 2008, equivalent to rise of 13% in $US value

terms. Although investment flows in Q2 eased somewhat

from the highs seen following the collapse of Lehman

Brothers, they were sufficiently buoyant to compensate

for the ongoing weakness in jewellery demand.

Jewellery off-take in Q2 was down 19% in tonnage terms

on the levels of Q2 2008, while in $US value terms, the

result was broadly similar at -17%. Notably, those rates of

decline were significantly less severe than those seen inQ4 2008 or Q1 2009, suggesting that the declining trend

in demand may be starting to stabilise. Recycling activity

also stabilised after a surge in Q1, even though cash

for gold advertising remained heavy and an increasing

number of retailers started to offer this service as a way

of attracting customers. Increased competition in this

sector and greater consumer awareness have resulted in

improved pricing for the consumer.

Economic conditions have remained very difficult.

Since the recession began in December 2007, the

unemployment rate has risen from 4.9% to 9.4% with more

than 7 million jobs being lost. The negative impact on

discretionary spending, including spending on jewellery,

Chart 7: Gold demand in Turkeyin tonnes and the lira price

0

20

40

60

80

100

400

700

1000

1300

1600

1900

Net retailinvestmentJewellery

Lira priceper ounce, rhs

Q1'09Q1'08Q1'07Q1'06Q1'05



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August 2009 19

has been significant. Both the high and lower ends of

the market have suffered and there has been some

move towards cheaper gold plated jewellery by budget

conscious consumers looking to meet price points.

Jewellers are still finding conditions challenging.

Inventories are very lean and at some stage, jewellers will

seek to re-stock. However, this is unlikely to happen until

demand shows sustainable signs of improvement and

credit conditions ease sufficiently to enable those stock

purchases to be funded.

Net retail investment during Q2, at 23.0 tonnes, was belowthe highs seen in the previous two quarters but still a

remarkable 91% above the levels of Q2 2008. Investment

flows have shown resilience, despite growing investor

confidence in the green shoots of recovery. In earlier

reports we expressed a view that while the bar and coin

flows of Q4 2008 and Q1 2009 would prove difficult to

sustain, they were unlikely to be reversed. We believe that

the key motivators have been inflation concerns and a

desire for greater diversification, not the chase for return.

Consensus opinion is that the US economy has bottomed

- analysts are forecasting a positive GDP outcome in

Q3. The annual rate of decline in jewellery off-take

should continue to become less severe over the next

few quarters, but the outlook remains concerning. With

employment being a lagging indicator and household

balance sheets in a poor state, consumer spending is

unlikely to be a key driver of the initial stages of economicrecovery. Consequently, jewellery off-take is expected to

struggle to show any significant improvement over the

coming year. While some further easing of bar and coin

demand may occur as investor fear continues to subside,

an environment of ongoing uncertainty and desire for

greater diversification should ensure that net inflows

remain at healthy levels.

Europe

Demand for gold jewellery in the European marketsremained weak in the face of persistent economic

pressures and a high gold price.

In a reflection of the global market trend, second quarter

jewellery off-take in Italy was stronger than the previous

quarter, but significantly weaker than year-earlier levels.

Compared with Q2 2008, demand was 27% lower in

volume terms and 14% lower in value terms. The

economic backdrop remains weak; the economy is

expected to contract by around 5% this year and private

consumption is being squeezed by rising unemployment

and limited credit availability. Although the average, euro-

denominated price of gold was lower in Q2 than in Q1,

it remained at lofty levels. Consumers were deterred by

these high prices and other, more affordable previous

metals such as silver were seen taking market share.

The outlook is for some mild improvement in demand in

Q3; stocks are running at very low levels and these may

be rebuilt in the autumn. There are some tentative initial

signs of green shoots in the economy as consumer

confidence has been rising since January in response

to slowing inflation, but there is little doubt that poor

economic conditions will continue to take their toll ondemand for at least the remainder of the year.

The volume of gold jewellery off-take in the UK fell 22%

in the second quarter from year-earlier levels. However,

the combination of a weaker pound and high gold prices

translated to a slight increase in the local currency value

of jewellery demand; 107mn compared with 105mn

in the same period last year. Nevertheless, the fragile

economic scenario and high price level restrained

consumer demand for gold jewellery and hallmarking

statistics show that the 9 carat segment was the worst

hit, followed by 18 carat, with 22 carat being relatively

more resilient. In a similar trend to the rest of Europe, it

would seem that the demand for lower carat jewellery is,

Gold Demand Trends

Chart 8: US gold demandin tonnes

0

25

50

75

100

125

150

100

150

200

250

300

350

400

Running annualtotal, rhs

InvestmentJewellery

Q1'09Q1'08Q1'07Q1'06



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August 2009 20

Gold Demand Trends

to some extent, being shifted into cheaper metals such as

silver. The resilience of 22 carat jewellery may reflect the

stronger store-of-value component.

Russian consumers, constrained by falling real wages,

rising unemployment and tight lending conditions, sharply

curtailed their demand for gold jewellery in the second

quarter. Tonnage off-take slumped 36% from year earlier

levels, reaching a five-year low of 13.5 tonnes. The decline

in value terms was of a similar magnitude; demand of

$400bn represented a 34% decline relative to Q2 2008.

Demand suffered across the full spectrum of the gold

market, in contrast to previous quarters, where high-end

branded product had been impervious to falling demand.

Indeed, the previously resilient premium segment of thegold jewellery market seemed to bear the brunt of the Q2

drop in demand. Nevertheless, demand for lower carat

jewellery also fell and a gradual growth in sales of silver

jewellery suggests a shift away from gold in the lower end

of the market towards more affordable silver items.

Inflation has moderated, enabling interest rates to be

slashed, and the rouble has stabilised. Lower interest

rates should see borrowing activity start to improve,

triggering some improvement in private spending.

Nevertheless, the outlook for the Russian economy is for

a sharp contraction this year (in the region of 8-8.5%),

followed by negligible growth in 2010, which suggests

that gold jewellery demand is likely to remain subdued

over coming quarters.

Retail investment across the European region recorded

another dramatic increase as continued concerns over

the state of the global economy and the possible threat of

inflation in a number of countries continued to stimulate

investment demand relative to year-earlier levels. Although

well below the levels of the previous two quarters, when

financial and economic uncertainty was at extreme levels,net off-take surged 607% from 9.1 tonnes in Q2 2008 to

almost 65 tonnes during the same period this year. In

value terms, this equated to an increase of 627% from

$US0.3bn to $US1.9bn.

The largest contribution to the increase in investment

came from Germany, where demand, at 28.0 tonnes, was

almost 23 tonnes higher than year-earlier levels. Although

this was considerably lower than the exceptionally high

demand seen in Q4 2008 and Q1 2009, it was enough to

ensure that Germany maintained its position as the largest

retail investment market in the world. Year-to-date, the 87

tonnes of investment demand recorded in Germany is

larger than total investment demand during the four year

period from Q1 2004 to Q4 2007. The highest growth rate

in the region was in the Other Europe category, of which

Austria and Belgium account for a large proportion,

where retail investment demand was 681% higher thanQ2 2008. Meanwhile, France recorded another quarter of

positive retail investment demand; the third consecutive

quarter that retail investment purchases have outweighed

dishoarding.

Worth noting is that although fresh inflows of capital have

waned somewhat following the huge injections witnessed

in recent quarters, demand for retail investment products

remain at extremely high levels and, importantly, there

have been no signs of a reversal of these flows with

the recent improvement in the outlook for global assetmarkets. This implies that the surge in demand was not

driven by temporary short-term factors but that investors

at the retail level are more interested in the longer term,

store-of-value attributes of gold investment products.

-50

0

50

100

150

200

-50

0

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100

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200

Other EuropeSwitzerland

GermanyFrance

Q1'09Q1'08Q1'07Q1'06

Chart 9: European netretail investment in tonnes



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August 2009 21

Gold Demand Trends

Source: Tonnage data are GFMS; Value data are WGC calculations based on GFMS data.

1. See footnotes to Table 1 for definitions and notes. 2. Provisional.

Historical Data for Identifiable Gold DemandTable 9: Historical data for identifiable gold demand1

Tonnes $USbn

Jewellery Net RetailInvest

ETFs &Similar

Industrial& Dental

Total Jewellery Net RetailInvest.

ETFs &Similar

Industrial& Dental

Total

2000 3,204 166 - 451 3,822 28.75 1.49 - 4.05 34.29

2001 3,008 357 - 363 3,727 26.21 3.11 - 3.16 32.48

2002 2,660 340 3 358 3,361 26.48 3.39 0.03 3.56 33.46

2003 2,483 301 39 382 3,206 29.00 3.52 0.46 4.46 37.45

2004 2,617 349 133 414 3,512 34.42 4.59 1.75 5.44 46.20

2005 2,712 393 208 432 3,745 38.75 5.62 2.97 6.17 53.51

2006 2,288 416 260 460 3,423 44.41 8.07 5.05 8.92 66.452007 2,404 433 253 462 3,552 53.76 9.67 5.66 10.32 79.41

20082 2,186 862 321 436 3,805 61.28 24.17 9.01 12.21 106.67

Q1'05 684 122 89 106 1,001 9.40 1.68 1.22 1.46 13.76

Q2'05 741 112 -2 111 962 10.18 1.54 -0.02 1.52 13.22

Q3'05 613 88 38 108 847 8.67 1.24 0.53 1.53 11.97

Q4'05 673 71 84 107 934 10.48 1.10 1.30 1.66 14.55

Q1'06 492 93 113 112 810 8.76 1.65 2.01 2.00 14.42

Q2'06 530 97 49 115 792 10.70 1.96 0.99 2.33 15.98

Q3'06 558 112 19 116 804 11.15 2.23 0.38 2.32 16.08

Q4'06 708 114 79 116 1,018 13.96 2.25 1.56 2.29 20.06

Q1'07 566 118 36 116 836 11.81 2.47 0.76 2.43 17.47

Q2'07 663 135 -3 118 914 14.22 2.89 -0.05 2.54 19.59

Q3'07 603 112 139 117 972 13.19 2.46 3.05 2.55 21.25

Q4'07 573 67 80 110 830 14.48 1.70 2.02 2.79 20.98

Q1'08 447 98 73 116 733 13.28 2.92 2.16 3.45 21.81

Q2'08 518 148 4 118 787 14.92 4.26 0.12 3.39 22.69

Q3'08 673 271 149 112 1,205 18.86 7.58 4.19 3.14 33.78

Q4'08 548 346 95 90 1,078 14.01 8.83 2.42 2.29 27.55

Q109 345 135 465 79 1,024 10.08 3.94 13.58 2.30 29.90

Q2092 404 166 57 93 720 11.98 4.91 1.68 2.76 21.33


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August 2009 22

Gold Demand Trends

FOCUS ON CHINA

During the last year, Chinas gold market has exhibited a

unique resilience to the pressures of the global economicrecession. In Q2, it was the only major jewellery consuming

nation to record a positive rate of growth in tonnage

jewellery off-take relative to the levels of a year earlier.

Furthermore, investment demand remained relatively

stable during the first half of 2008, avoiding the bouts

of profit-taking experienced by most other countries in

the eastern part of the world. Notably, total gold off-take

in Q2 surpassed that in India, traditionally the worlds

largest consumer, for the second consecutive quarter.

Why have trends in Chinese gold demand differed somarkedly from trends in other eastern countries over

the last year? The reasons can be summarised under the

following three headings:

Relative stability in the local currency and therefore the

local gold price.

The resilience of the Chinese economy to the global

economic downturn.

The absence of large stocks of gold holdings among

consumers due to earlier market regulations restricting

private gold ownership.

The absence of volatility in the local currency against

the US dollar helps to explain the resilience in Chinese

demand. As suggested by the graph opposite, the

RMB gold price has gradually diverged relative to the

$US price since the beginning of 2008 i.e. the RMB

appreciated slightly against the $US over that period.

In comparison, sharp falls in the Turkish lira and Indian

rupee resulted in record highs in the gold price for their

domestic consumers during late 2008/early 2009.

The second factor that helps explain the mystery of

Chinas resilience in gold demand is the local economys

ability to withstand the pressures of the global economic

downturn. While the current rate of economic growth, at

around 7.5-8.0%, is down markedly on the levels of 10%+

seen in 2007, it is well away from the recession conditions

that other key economies have experienced. Nominal

incomes have continued to rise and consumer spending

has continued to increase. In contrast, economic

conditions have been a significant dampener on jewellery

demand across many parts of the world.

A third factor that we believe contributed to the recent

stability in Chinese gold demand is the absence of a largepool of private ownership i.e. most Chinese consumers

are still in the process of accumulating their holdings,

despite a long-standing cultural affinity to the precious

metal. These low levels of gold ownership reflect a long

period of price and import controls. Retail price controls

in the jewellery sector were only abolished in 2001 and on

the investment side, while the Shanghai Gold Exchange

was established in 2002, the investment market was, in

fact, only opened up in 2005.

This absence of a large stock of private ownershipmeans that consumers and investors are less willing to

sell back their holdings, either in the form of recycling

activity (jewellery) or profit-taking (bars and coins) than

their counterparts in India or the Middle East. Effectively,

consumers are still playing catch-up following a period

of strict regulatory controls. The tendency for jewellery

owners to behave tactically may also be tempered by the

absence of daily price volatility at the retail level. While

24 carat jewellery (which constitutes the largest market

share) is sold by weight and at a very low margin, making

it attractive as an investment vehicle as well as a means of

adornment, the fact that the retail price per gram doesnt

600

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TurkishLira

ChineseRenminbi

IndianRupee

$US

Jul-09Apr-09Jan-09Oct-08Jul-08Apr-08Jan-08

Chart 10: Gold price in selected currencies,Jan 1 2008 = 1000

Source: GFMS


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August 2009 23

typically vary daily with the spot price may impact on the

tactical el

www.gold.org

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