Jewellery demand keeps sheen on trade

The demand for gold in India and China will continue to grow in 2010, driven by demand for jewellery (as opposed to investment), in spite of high local prices, the World Gold Council (WGC) has said.

In its ‘Gold Demand Trends’ report published today, WGC said India was the strongest-performing market in the first quarter of this year as consumer demand surged nearly 700 per cent to 193.5 tonnes compared to the corrsponding period last year. The demand in India was quite low last year due to high prices. In China, the demand rose 11 per cent to 105.2 tonnes.

However, global gold demand fell 25 per cent in the first quarter from 1,017 tonnes to 760.2 tonnes. This was due to a plunge in demand for investment, down 69 per cent from 609.5 tonnes to 186.3 tonnes.

However, jewellery demand rose 43 per cent to 470.7 tonnes. The fall in investment demand globally also reflects the exceptional level seen in the first quarter of 2009. The average between 2004 and 2008 was only 168.6 tonnes. Compared to this, this year’s first-quarter investment demand was up 11 per cent.

The growth in India-Chna demand, said WGC, would find some support in European and US investment demand in view of continued economic instability, sovereign risk and threat of a ‘double-dip’ recession. Such uncertainty boosts demand for gold.

WGC also said demand had improved in the second quarter of the current year. Concerns over Greece’s public finances and debt contagion fears in Europe have led to strong buying, particularly of gold coins, bars and gold exchange-traded funds (ETFs) during May, which will get reflected in second-quarter figures.

Aram Shishmanian, CEO of WGC, said, “Currently, European gold investment demand is exceptionally strong, especially from German and Swiss investors. This is mainly attributable to concerns over public debt in the euro zone and the potential inflationary impact of the European Central Bank’s $1-trillion rescue package to purchase euro zone government bonds to address the Greek debt crisis.”

On the supply side, the WGC report says: “First quarter data show a 24 per cent decline in gold supply to 949 tonnes from 1,250 tonnes in the first quarter of 2009.

A significant slowdown in recycling from record year-earlier levels, combined with subdued sales from the official sector, kept a lid on supply, which was further constrained by producer de-hedging.”

Mine production registered an increase to 611 tonnes, five per cent over the first quarter of 2009.