Global gold demand in the first quarter of 2012 fell by 1,097.6 tonne, in volume terms, compared to the same quarter in 2011, World Gold Council said in its first quarter 2012 review of the Global gold market.
The slump in volume demand was attributed to a 22% rise in gold prices in dollar terms. Gold on COMEX, had consolidated at $1,690.57, up 22% from Q1 2011 in the quarter, owing to safe-haven demand for the precious metal to off-set risky investments and volatile equity markets.
Global gold demand in the quarter was led by investment demand and buying by Central banks across the world in a measure to diversify their investments and rising foreign exchange reserves, which more than offset the slump in jewellery and bullion buying, the report said.
Eurozone crisis, slowdown in China and India led to the rise in gold prices in the first quarter of 2012, before prices dropped into the bear market last week.
Investors diversified their investment in the US dollar and decided to hold cash, rather that invest in physical gold to lay risk off, analysts said.
However, the value demand of gold in the first quarter, 2012 was higher by 16% compared to Q1, 2011.
Global Investment Demand
Investment demand was the only sector which registered a year-on-year growth led by core investment in Exchange Traded Fund instruments and other similar products.
Demand for gold bars, coins and ETF's grew by 13% on year to 389.3 tonne.
Net inflows in ETF's Q1 2012 totalled 51.4 tonne vs net outflows of 62.1 tonne in Q1 2011.
Demand for imitation coins and medals, led by India, was up 7%, although remained modest at 26.6 tonne.
Other investment areas, ie investment in gold bars and coins in Q1 2012 did not surpass 2011 Q1 levels, where the escalating Eurozone crisis and the developments in the Middle East had given impetus to buying gold bars and coins as a measure of risk aversion.
Global demand for gold bars and coins in 2012 Q1 at 260.0 tonne, and 51.3 tonne, respectively, 18% lower than the previous quarter. This was nevertheless very robust in a longer-term context, the WGC report said.
OTC investment and stock flows were very moderately negative in the first quarter, showing net outflows of 18.6 tonne compared with considerably larger net outflows of 151.1 tonne in the same period last year, the report said.
Investment demand in India was down 46% from year ago, while Chinese figures jumped 13% year-on-year to reach a quarterly record of 98.6 tonne.
Taiwan gained 23% and Hong Kong gold bars and coin demand was up 11%.
Vietnam was the region's strongest performing markets, where volume of investment grew 41% year-on-year.
Turkey investment demand totalled a decline of 12% from year-earlier levels, while the Middle Eastern region staged a recovery of 18% from same period last year.
US investment demand had declined by 32% on year, and Germany was 44% weaker.
Global Jewellery Demand
Jewellery demand was down 6% at 519.8 tonne on year largely pulled down by the rise in global gold prices. This fall in demand was negligible compared to the 22% price rise in dollar terms, which reflected the price inelasticity of gold.
Owing to the rise in gold prices, value demand of global gold in the quarter was up 14% to a record $28.3 billion.
India was largely responsible for the decline in gold demand in Q1 2012, while China led the jewllery demand market in the first quarter.
India's jewellery demand declined 19% on year-on-year basis, pulled down by weakness in rupee and certain steps taken by the Central Government to reduce the current account deficit.
India's customs duty on standard gold was hiked to 4%, while also widening the net to double the duty on non-standard gold and gold jewellery to 10%. An additional 0.3% excise duty was also imposed on branded as well as unbranded gold jewellery, with jewellers being asked to collect tax at source on all gold purchases above Rs 2,00,00.
This let to a three-week long strike by jewellers in most of the leading gold markets in the country, aggregating a loss of about Rs 28 crore in the three-week period.
Demand for jewellery was affected by these policy and regulatory changes in gold in India, and lead to a disruptive quarter for gold in the country, the WGC report said.
WGC believes gold buying in India is likely to normalise in the coming quarters of 2012 after the Finance Minister withdrew excise duty in early May, thus pulling devout gold buyers and investors back into the market.
China dominated the jewellery market in the first quarter. Demand of 156.6 tonne was 8% higher year-on-year and accounted for 30% of global jewellery demand. This placed China as the largest jewellery market for the fird consecutive quarter.
Rising income levels and the Chinese New Year helped to drive the growth in demand, which was concentrated in the 24-carat, pure gold jewellery segment, while demand for 18-carat slipped, the report said.
Among other major countries contributing to the global gold jewellery demand, Russia was the strongest performing gold jewellery markets of the quarter, generating 28% year-on-year growth in demand at 20.4 tonne. Taiwanese and Indonesian jewellery demand rose by 9% year-on-year.
While most Middle Eastern countries showed a decline in demand, Egypt was the only country where demand was up 14%. Demand in Hong Kong slipped by 12%, Vietnam 10%, and Thailand 8%.
South Korea shifted to silver jewellery in a response to rising gold prices, which pulled down its jewellery demand by 20%.
Demand in Saudi Arabia and Dubai also dropped 17%.
High gold prices continued to erode demand in the western markets particularly in the US and Italy, both showing double digit declines. US demand fell 10% to 17.6 tonne, while value measure of demand increased by 10% in the same period, the report said.
Economic indicators released in the preceding months show a stabilizing economy, which may reflect in higher gold demand in the coming quarters, the report stated.
In Italy, demand slid 14% to 3.5 tonne as negative growth took its toll.
UK demand was down for the same reason, reducing their demand for gold jewellery by 4%
Demand for gold in technology was also hit by rising gold prices, down by 7% on year to 107.7 tonne. Volume of gold used in electronics was down 6% in the same period at 75.4 tonne. According to the Semiconductor Industry Association, worldwide semiconductor sales were down 8% over sales in the corresponding period.
However, there were some positive developments in the technology sector with strong consumer demand for wireless products such as mobile phones and media tablets boosting demand.