Gold demand fell 17 percent in the second quarter from a year earlier as investment slipped, while Asian buying and concerns about the global economy will drive consumption this year, the World Gold Council said.
Global demand dropped to 919.8 metric tons from the “remarkably strong” 1,107 tons a year earlier, when Europe’s debt crisis boosted gold’s appeal, the London-based industry group said today in a report. In value terms, consumption climbed 4.6 percent to $44.5 billion, the second-highest amount ever, as prices rallied. Buying in China and India, the world’s two biggest gold consumers, rose at least 25 percent.
Debt woes in Europe and the U.S. and concerns about slowing economies pushed bullion to a record $1,814.95 an ounce on Aug. 11. Holdings in exchange-traded products touched a record last week, and central banks are adding to their reserves for the first time in a generation as gold heads for its 11th straight year of gains, the longest winning streak since at least 1920.
“India and China were very strong, and it shows you that you don’t necessarily have to have a strong investment quarter to see a strong gold market,” Marcus Grubb, managing director of investment at the producer-funded council, said in an interview from London yesterday. “You’re seeing household wealth and economic growth remain very strong in both countries. You’re going to see demand for gold as a result of the slowdown in the economy” elsewhere, he said.
Gold for immediate delivery traded at $1,784.80 an ounce by 4:30 p.m. yesterday in London. Prices averaged $1,509.22 in the quarter, up 26 percent from a year earlier and 8.8 percent higher than the first quarter. Demand in 2010’s second quarter was the strongest since the third quarter of 2008 and the second-highest since at least 2005, council data show.
Investment slid 37 percent to 359.4 tons in the latest quarter. While bar and coin purchases rose 8.9 percent to 307.7 tons, growth in ETP holdings slowed. Assets gained 38.5 tons in the period, compared with 276.1 tons a year earlier, data compiled by Bloomberg show. Investors currently own 2,188 tons in the products, more than all but four central banks. Assets reached a record 2,216.8 tons on Aug. 8.
Jewelry consumption climbed 6.2 percent to 442.5 tons in the quarter, the council said. Usage in India rose 17 percent to 139.8 tons, and the country and China accounted for 55 percent of global purchases. Total gold demand gained 38 percent in India and 25 percent in China.
“You’re not seeing recycling coming into the market, even with a high gold price, and you’re tending not to see demand drop substantially in jewelry when the price goes up,” Grubb said. Consumers are more accustomed to higher prices, he said.
India’s bar and coin purchases totaled 108.5 tons in the quarter, compared with China’s 53 tons. China’s demand for those assets had overtaken India’s in the first quarter.
Central-bank and government-institution purchases rose almost fivefold to 69.4 tons in the quarter, taking the first-half total to 192.3 tons, the council said. Central banks will remain net buyers this year, it said.
Total supply fell 4.5 percent to 1,058.7 tons in the quarter from a year earlier as scrapping slipped 3.4 percent to 429.3 tons, the council said. Mine output rose 7.5 percent to 708.8 tons, it said.