Gold demand reached 1,050.3 metric tons in the second quarter, 36% higher than the same quarter in 2009, mostly thanks to soaring investment demand

According to the WGC’s Gold Demand Trends report for Q2 2010, published today, demand for gold for the rest of 2010 will be underpinned by the following market forces:

* India and China will continue to provide the main thrust of overall growth in demand, particularly for gold jewellery, for the remainder of 2010.

* Retail investment will continue to be a substantial source of gold demand in Europe.

* Over the longer-term, demand for gold in China is expected to grow considerably. A report recently published by The People’s Bank of China and five other organizations to foster the development of the domestic gold market will add impetus to the growth in gold ownership among Chinese consumers.

* Electronics demand is likely to return to higher historic levels after the sector exhibited further signs of recovery, especially in the US and Japan.

Investors are making the switch from buying gold only in times of crisis to having gold as part of a diversified portfolio, said Jason Toussaint, a managing director for the World Gold Council.

“Gold is the ultimate diversifier,” he said. “Correlation to U.S. equities is zero” in addition to its proven ability to not only hold value in times of crisis but increase.

Marcus Grubb, Managing Director, Investment at the WGC commented:

“Economic uncertainties and the ongoing search for less volatile and more diversified assets such as gold will underpin investment demand for gold in the immediate future. Further, in light of lingering concerns over public debt levels and the euro, European retail investor demand has increased significantly.

Over the past quarter, demand for gold jewellery in key Asian markets has been challenged by rising local prices. Nevertheless, we are seeing a deceleration in the pace of decline in demand, providing a strong outlook for ongoing recovery in this crucial market segment.”

DEMAND STATISTICS FOR Q2 2010

* Total gold demand1 in Q2 2010 rose by 36% to 1,050 tonnes, largely reflecting strong gold investment demand compared to the second quarter of 2009. In US$ value terms, demand increased 77% to $40.4 billion. (more…)

Mixed economic news around the world, concerns over a double dip recession and significant fiat currency weakness meant gold retained its lustre as a protector of wealth during the second quarter 2010, according to the World Gold Council’s (WGC) latest Gold Investment Digest (GID).  The quarter recorded significant net inflows into various gold-backed investment vehicles, as investors sought to harness gold’s investment benefits at a time of weakness and pronounced volatility in other asset classes.

While China has remained resilient, GID also suggests that jewellery demand in other key markets has continued to recover from a weaker 2009.

The report, which was published today, showed:

• Heightened investor activity supported an upward trend in the gold price throughout the quarter; on several occasions breaking record highs and reaching US$1,261.00/oz on the London PM fix on 28 June, as investors sought out assets offering protection, diversification and liquidity.
• Investors bought 273.8 net tonnes of gold via exchange traded funds (ETFs) in Q2 2010.  This represents the second largest quarterly inflow on record and brought the total amount of gold held in the ETFs that the WGC monitors to over 2,000 tonnes (worth US$81.6 billion). In particular, SPDR Gold Shares (GLD) surpassed the US$50 billion milestone.
• In the early part of the second quarter, many currencies around the globe not only fell against the US dollar but also experienced higher levels of volatility as credit woes in Europe had a negative impact on the outlook for the euro and the British pound. While the dollar appeared to fare better, investors sought out gold as a currency alternative as evidenced by large purchases of coins and small bars around the globe.
• Many assets, including global equities and commodities, experienced a period of pronounced volatility, in some instances surpassing levels seen during the first quarter of 2009.  Gold price volatility, however, remained much lower than many of these assets during the period, meaning gold outperformed versus S&P 500 Total Return Index, the MSCI World ex US Index and S&P Goldman Sachs Commodities Index (S&P GSCI) on a risk-adjusted basis.
• In Q2 2010, the diversity of gold’s demand base, less driven by industrial uses as many other commodities, meant that gold was one of the best performing commodities.  Oil fell by 9.1% and, similarly, metals with a greater degree of exposure to industrial cycles fell substantially: zinc, nickel and lead dropping by more than 20.0% quarter-on-quarter. Even platinum and palladium posted quarterly losses on the order of 6.7% and 7.9%, respectively.

Juan Carlos Artigas, Investment Research Manager, World Gold Council commented:

“During the second quarter, many financial assets, especially in Europe, suffered losses as risk aversion, credit concerns, and disappointing economic news around the world prompted investors to seek assets with little or no default risk, greater liquidity and lower volatility.  As a result, gold was, once again, one of very few assets that exhibited a positive price performance during the period.  However, it is important to note that while gold continued its upward trend during Q2 2010, its price, relative to the price of various assets is not overvalued by historical standards¹ . (more…)

Economic uncertainty, sovereign risk in western markets and appetite for gold from Asia to underpin market

The World Gold Council (“WGC”) expects that demand for gold will be strong during 2010, driven by growing demand for jewelery in China and India as well as an increase in European and US investment in the context of continued economic instability, sovereign risk and the threat of a ‘double dip’ recession.

According to WGC’s Gold Demand Trends report, published today, demand in India and China will continue to grow driven by jewelery demand, in spite of high local currency gold prices. In Q1 2010, India was the strongest performing market as total consumer demand surged 698% to 193.5 tonnes. In China, demand proved resilient; demand increased 11% in Q1 2010 to 105.2 tonnes.

This strong demand is despite high local gold prices, which on May 12 in India increased to Rs 56,032/0z, the highest level for the year, while at the same time in China prices reached an all-time high of RMB8,480/oz, suggesting that consumers in India and China are becoming accustomed to higher gold prices.
Concerns over Greece’s public finances and debt contagion fears in Europe have led to strong buying in particular for gold coins, bars and gold exchange traded funds (ETFs) during May which may show up in the Q2 2010 figures. While momentum in ETF tonnage paused during Q1 2010, gold ETF flows started to rise strongly again in April and May as investors sought less volatile investments in which to protect their funds against economic turmoil. On 20 May the GLD SPDR Gold Trust held a record 1,200 tonnes, with a value of US$46.88 billion.

Aram Shishmanian, CEO of the World Gold Council commented:

“Currently, European gold investment demand is exceptionally strong, especially from German and Swiss investors. This is mainly attributable to concern over public debt levels in the Eurozone and the potential inflationary impact of the European Central Bank’s (ECB) announcement of the US$1 trillion rescue package to purchase Eurozone government bonds to address the Greek debt crisis.”

“With the global economic recovery still burdened by high and rising debt levels in Western economies, as well as the renewed threat of recession driving down the US dollar and equities, the outlook for gold as a liquid, reliable asset class and as a store of wealth remains highly favorable.”

According to the WGC, global jewelery demand in non Western countries will continue to recover after reaching 470.7 tonnes in Q1 2010. Economic recovery in Europe and the US will add to this demand, as a potential return to restocking in the jewelery sector is likely, given that existing inventories have been run down since the first half of 2009 to very lean levels. This should provide fundamental support to the gold price. (more…)