As North American investors continue to shy away from gold, consumers in Asia and the Middle East are lining up to buy the physical metal, driving demand to new heights. That is the conclusion of the World Council’s Gold Demand Trends report, which examined the supply and demand for gold during the second quarter, during which gold took a dramatic fall, losing $200 over three days.
According to the report, demand for gold jewelry was up 37 percent in the quarter to 575 tonnes, compared to 421 tonnes in the second quarter of 2012. The biggest gold jewelry consumers were China and India, where demand was up a respective 54 percent and 51 percent compared to a year ago. Middle Eastern consumers were also cueing up to buy gold jewelry, with demand up 33 percent in the region and 38 percent in Turkey.
“Specifically the demand for jewelry was the highest second quarter since 2007,” said David Lamb, Managing Director, Jewellery at the World Gold Council. “This was driven by the powerhouse markets of India and China, jointly representing 50 percent of world demand.”
Commenting on the Chinese numbers, Lamb said “despite recent price adjustments, this gold demand trend data reinforces just how the Chinese belief that holding gold as a store of value has become even more entrenched.”
Along with gold bracelets, rings, earrings and necklaces, Asian consumers were also interested in picking up gold bars and coins at a deep price discount. According to the report, Chinese demand for gold bars and coins was up 157 percent compared to the year-ago quarter, while in India demand increased 116 percent to a record 122 tonnes. Globally, bar and coin investment grew 78 percent to a record 508 tonnes.
“This surge in bar and coin investment was a common theme in key markets around the world, and has been particularly prominent in the world’s biggest gold markets, India and China,” Marcus Grubb, Managing Director, Investment at the World Gold Council, said in a statement.
In fact, the well publicized outflows from gold exchange traded funds (ETFs), which is chiefly a North American phenomenon, have been outpaced by inflows of investment into gold bars and coins. While bullion in gold-backed ETFs fell by 402 tonnes in the second quarter, 502 tonnes of bars and coins were purchased in Q2, according to the WGC.
Central banks continued to be net buyers of gold, purchasing 71 tonnes of the metal in the quarter and continuing the trend of central banks being net buyers of gold that started in the first quarter of 2011. Gold demanded for technological applications was largely flat, up 1 percent quarter to quarter.
While consumer and central bank demand for gold was up during the quarter, overall demand for the metal was down by 12 percent, or 856 tonnes, compared to a year ago, said WGC.
The council’s numbers on the supply side bode well for the gold price, since they indicate a tightly supplied market. According to WGC, mine production in the second quarter was 4 percent higher than the year-ago quarter, but recycling fell 21 percent, meaning that total supply was 6 percent less than last year. ”Supply, therefore remains constrained,” concluded Lamb.