Gold Demand Jumps 36% as Investors Step Up Purchases of ETFs, Council Says

Gold demand rose 36 percent in the second quarter as investors boosted purchases of bullion-backed funds and sent prices surging during Europe’s sovereign-debt crisis, the producer-funded World Gold Council said.

Global demand rose to 1,050.3 metric tons from 769.6 tons a year earlier, the London-based industry group said today in a report. Investors purchased 291.3 metric tons of gold in exchange-traded funds, or ETFs, the second-highest quarter on record, and central banks were net buyers for a fifth straight period.

Gold traded in New York averaged $1,198.05 an ounce during the quarter, up 30 percent from a year earlier, as Europe’s fiscal woes spurred investors to buy gold as a haven. The metal surged to a record $1,266.50 on June 21 and reached the highest ever in euros, sterling and Swiss francs.

“We see a fresh incentive in terms of investment demand with ongoing uncertainty over debt levels, the lack of confidence in financial markets and the economic recovery still weak,” said Eily Ong, a research manager at the council in London.

Gold prices have rallied 13 percent this year in New York, heading for the 10th straight annual gain.

Investment demand, including bars and coins, more than doubled to 534.4 tons from 245.4 tons, the council said. Jewelry demand fell 5.1 percent to 408.7 tons, and total demand from India, the biggest buyers of the metal, was little changed from a year earlier at 164.5 metric tons.

Safe-Haven Buying

Quarterly investment in gold ETFs surged as European policy makers pledged $1 trillion to rescue the region’s economy. ETFs attracted 465.1 tons of investment in the first quarter of 2009, the most ever, after the Federal Reserve slashed the main U.S. interest rate to between zero and 0.25 percent to stimulate the economy and Congress passed the Troubled Asset Relief Program to bail out banks.

Gold supply rose almost 18 percent to 1,131.6 tons from 963 tons, the council said. Central banks purchased 7.7 metric tons during the quarter and producers bought back 15 tons.

Gold futures for December delivery rose $4.90, or 0.4 percent, to close at $1,233.40 an ounce yesterday on the Comex in New York. Gold for immediate delivery in London rose $4.40, or 0.4 percent, to $1,230.55 an ounce as of 10 p.m. yesterday.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

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