Gold demand to remain upbeat this year: WGC

Gold demand is likely to remain strong in 2010 following a sharp rise in jewellery consumption from emerging markets led by China and India.

An increase in investment by Europe and US in the wake of continued economic instability, sovereign risk and the threat of a ‘double dip’ recession, has also raised hopes for the yellow metal to remain on the top of the investment agenda this year, the World Gold Council (WGC) said in its latest report. Gold is always considered a safe investment during economic uncertainty and moves inversely with the dollar.

The report further said that despite high prices in the local currency, India’s gold demand would primarily continue to improve. The WGC anticipates an increase in demand in the jewellery sector with festive season due to start at the end of summer and continues till November.

June, however, is usually the annual off-peak season for the Indian markets, and consumer sentiment appears to have turned sluggish given the higher price levels and relative volatility in the market.

However, indications of investor activity remain strong as noted by the development of new investment vehicles, including ETFs, and saving schemes, as inflation has risen at a double digit pace during the recent months. Gold remains an important vehicle for wealth preservation.

In the first quarter, the strongest performing market over the period was India, where demand soared by 291 per cent to 147.5 tonnes, from a very low base of just 37.7 tonnes in the first quarter of 2009.

Outside India, jewellery demand posted a modest rise of 11 per cent, to 323.3 tonnes in the first quarter of 2010 from 291.6 tonnes in the same period a year ago.

Concerns over Greece’s public finances and debt contagion fears in Europe have led to strong buying particular for gold coins, bars and gold ETFs during May. While momentum in ETF tonnage paused during Q1, 2010, gold ETF flows started to rise strongly in April and May as investors sought less volatile investments to protect their funds against the economic turmoil.

On 20 May, SPDR gold shares (GLD) held a record 1,200 tonnes, with a value of $46.88 billion.