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Global Gold Demand +16% to $60B in 1Q

May 17, 2012 3:37 AM   By Dilipp S Nag
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RAPAPORT... Global demand for gold rose 16 percent year on year to $59.7 billion in the first quarter of 2012 driven by increased orders out of China, purchases from  central banks and inflows into exchange-traded funds (ETFs), according to the World Gold Council (WGC).

However, gold demand by volume fell 5 percent to 1,097.6 tonnes during the quarter due to the introduction of import taxes in India and higher gold prices, the WGC’s quarterly ''Gold Demand Trends'' reported. The average price of gold for the quarter rose 22 percent to $1,690.57 an ounce from a year earlier. However, gold has since  fallen to a 10-month low.

Jewelry demand grew by 14 percent year on year in the first quarter to a record $28.3 billion, but it fell 6 percent by volume  to 519.8 tonnes. Weakness was observed from India and some Middle Eastern markets and from Europe, while a number of markets, primarily China, Russia and Egypt, generated growth, the report stated.

Gold investment demand -- including gold bars, coins and ETFs -- increased 38 percent year on year to $21.2 billion and rose by 13 percent by volume to 389.3 tonnes. Demand for gold used in the technology and industrial sectors declined 7 percent to 107.7 tonnes.

The report explained that China’s investment and jewelry demand combined rose 10 percent to a record 255.2 tonnes, boosted by the local New Year holiday. Investment demand recorded strong growth with a quarterly record of 98.6 tonnes, up 13 percent from 2011, demonstrating investors’ continued need to preserve wealth amidst ongoing concerns from inflation. Chinese gold jewelry demand also increased significantly to 156.6 tonnes, accounting for 30 percent of global jewelry demand, making China the largest jewelry market for the third consecutive quarter.

WGC noted that gold continues to benefit from rising income levels, increasing urbanization, economic growth and the high inflation environment although the pace of growth in demand is slowing in China.

In India, gold demand was affected in the first quarter due to factors such as a new tax on gold jewelry, increase in the import duty for gold and weakness and volatility in the rupee. The country’s total gold demand fell 3 percent to $10.42 billion and declined  29 percent by volume to 207.6 tonnes during the quarter. Jewelry demand declined 19 percent to 152.0 tonnes, while investment demand slumped 46 percent to 55.6 tones. However, the market is responding positively after the government withdrew the new tax on jewelry in early May, the report noted.

"The beginning of 2012 has been a challenging period for the Indian gold market. Despite all the challenges – price rises, economic slowdown, rapid social change, gold retains its luster for consumers,” said Ajay Mitra, the managing director of India and Middle East at WGC. “We are optimistic that demand levels will normalize in the upcoming months as Indian consumers adjust to the new gold landscape.”

He added that the encouraging levels of demand seen during Akshaya Tritiya and the recent wedding season will flow through into the second quarter as more consumers build gold purchases into their budgets.

“China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West,” said Marcus Grubb, the managing director of investment at WGC. “As we previously forecast it is likely China will become the largest source of demand for gold in 2012.”

Grubb noted that the growth predictions also extend to other emerging market economies and is reinforced by central banks’ continued buying of gold, as a diversifier and a preserver of national wealth.

The report said that demand from central banks across the globe reached 80.8 tonnes during the quarter as they look to diversify their holdings. The demand was driven by Eastern Europe,  Russia and Kazakhstan all adding to their holdings and accounting for a substantial amount of the purchasing. Mexico’s central bank made the largest single purchase of 16.8 tonnes.

Demand for ETFs and similar products totaled 51.4 tonnes, equivalent to a value of $2.8 billion, in stark contrast with the first quarter of 2011, when the sector witnessed net outflows and profit taking.

Total gold supply during the quarter rose 5 percent year on year to 1,070.3 tonnes as mining production saw modest growth to 673.8 tonnes, while the supply of recycled gold increased 11 percent to 391.5 tonnes.

“The current picture of the gold market is diverse and not withstanding a flight into U.S. dollars and treasuries near term, we believe the fundamental reasons for investing in gold today remain very strong and compelling,” Grubb stated.
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Tags: Ajay Mitra, Central banks, China, demand, Dilipp S Nag, etfs, Exchange-traded funds, gold, Gold demand, India, Investment Demand, Jewelry, Jewelry demand, Marcus Grubb, Rapaport, supply, WGC, World Gold Council
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