The cost and demand of gold as an investment vehicle has resulted in a slight drop in its use for jewelry manufacturing in the second quarter, according to the World Gold Council. However, the organization said the decline is subsiding in its key Asian markets.
“Over the past quarter, demand for gold jewelry in key Asian markets has been challenged by rising local prices,” said Marcus Grubb, WBC managing director, Investment. “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.”
In the face of surging price levels, global jewelry consumption totaled 408.7 tons during the second quarter of 2010, 5 percent below year-earlier levels, the WGC said in its Gold Demand Trends report for the second quarter of 2010.
Gold jewelry demand in India, the largest jewelry market, was down just 2 percent at 123 tons. In local currency terms, this translates to a 20% increase in the value of demand, WGC said. Meanwhile, China saw demand for gold jewelry increase by 5 percent to 75.4 tons. While growth in demand in tonnage terms was hindered by extreme weather conditions, the growth in the local currency value measure of demand was 35 percent.
The WGC did not include figures for the U.S. jewelry demand in its release of the report for the media.
Total gold demand for the second quarter rose by 36 percent to 1,050 tons, largely reflecting strong gold investment demand compared to the second quarter of 2009, the WGC reports. In US value terms, demand increased 77 percent to $40.4 billion.
Investment demand was the strongest performing segment during the second quarter, posting a rise of 118 percent to 534.4 tons, compared with 245.4 tons in the second quarter of 2009. The largest contribution to this rise came from the ETF segment of investment demand, which grew by 414 percent to 291.3 tons, the second highest quarter on record. Physical gold bar demand, which largely covers the non-western markets, rose 29 percent for the period to 96.3 tons.
“While many investors turned to gold as a ‘flight to quality’ in response to the uncertain financial environment, this interest has proved resilient even though a sense of optimism has started to return to some sectors of the investment community,” Grubb said. “In addition to the ETF market and physical bar and coin market, the demand for gold through internet based investment platforms is likely to provide further sources of investment demand.”
The WGC said demand for gold will remain robust during 2010 as a result of accelerating demand from India and China, as well as increasing global investment demand driven by continuing uncertainty over public debt and economic recovery.
“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,” Grubb said. “Further, in light of lingering concerns over public debt levels and the euro, European retail investor demand has increased significantly.”