JEDDAH – Gold demand fell for a third consecutive quarter in the three months to June, largely hurt by a sharp drop in buying from top consumer India, the London-based World Gold Council said Thursday. It was the first three-quarter decline since 2009. Global gold demand in Q2 2012 fell nearly 76 tons in three months to June to 990 tons, down 7 percent from the 1,065.8t in Q2 2011, according to the World Gold Council's Gold Demand Trends report. This dip in demand was partly due to the comparison with exceptional demand last year, and also reflects the challenging global economic climate. In this context, gold performed as expected, acting as both a store of value and a source of liquidity. Spot gold was holding just above $1,600 Wednesday afternoon, a little more than flat on the year. In value terms gold demand remained relatively stable year on year at $51.2 billion, compared to $51.6 billion in Q2 2011. During the quarter, the average price of gold was $1609.49 per ounce, 7 percent higher than the average for Q2 2011. However, gold buying by the world's central banks hit a new record of 157.5 tons, more than double the level of Q2 2011 and accounting for 16 percent of overall global demand. This, by our reckoning is also around 22.5 percent of total gold supply over the period extrapolating from the WGC's own annual figures for 2011. Central banks that significantly bolstered their holdings during the quarter included the national bank of Kazakhstan, and the central banks of the Philippines, Russia and Ukraine. Overall, the WGC noteds that if the central bank buying continues at the current rate where they have bought 254 tons against 200 tons H1 2011 this could be a record year, for Central Bank buying. The WGC also estimates that in value terms gold demand actually remained relatively stable year on year at $51.2 billion, compared to $51.6 billion in Q2 2011. During the quarter, the average price of gold was $1609.49 per ounce, 7 percent higher than the average for Q2 2011. The main reasons for the demand fall come down to reductions from the key global gold markets of both India and China over the period. In India, investment and jewelry demand is seen as falling sharply to 181.3 tons, down from 294.5 tons in Q2 2011 with investment demand there less than half the level in Q2 2011. Indian jewelry demand also experienced a noticeable drop. These marked declines were partly a reflection of the strength of demand in Q2 2011 and perhaps also due to the high gold price in rupees due to the currency's weakness against the US dollar as well as concerns over a weak start to the monsoon season. China's investment and jewelry demand at 144.9 tons was down 7 percent from the same quarter last year. Investment demand fell by 4 percent year-on-year which the WGC reckons may have been due to the lack of direction exhibited by the gold price. The lack of sustained upward momentum in the gold price and the slowing of domestic GDP also discouraged consumers from buying gold jewelry, which saw a 9 percent year-on-year decline. One suspects also that the growth slowdown being experienced in China at the present may also have been a contributing factor. In Europe, gold demand climbed with a 15 percent year-on-year increase - 19 percent higher than the five year quarterly average due to worries over the sovereign debt crisis and the metals' perception as an enduring store of value.. The WGC also noted that despite a difficult economic background, ETF demand was relatively resilient, recording net outflows of only 0.8 tons year-on-year. Commenting on the latest findings, Marcus Grubb, Managing Director, Investment at the WGC, said: “Gold's performance reflects the continuing challenging economic climate. A softness in India and China, who between them represent over 45 percent of the total second quarter jewelry and investment demand accounts for much of the slowing of global gold demand... however, through all the uncertainty, it is clear that gold's fundamental properties as a vehicle for capital preservation and a source of liquidity continue to endure. This is evident from the activity of central banks, the ultimate long-term investors, which continue to increase their gold holdings to diversify reserves and protect against reliance on one or more foreign currencies. Grubb also reckons that the latest figures continue to suggest that China will overtake India as the world's largest gold consumer in 2012. Second quarter gold demand of 990.0t was down 7 percent in comparison to Q2 2011 The value measure of gold demand was 1 percent lower year-on-year at $51.2 billion. The average gold price of $1,609.49/oz was 7 percent above the average Q2 2011 price. Demand in the jewellery sector of 418.3t was 15 percent lower than 490.6t in Q2 2011, excluding India and China jewellery demand was down by 4 percent Investment demand fell by 23 percent year-on-year to 302.0t, slightly below the 5 year quarterly average of 340.3t. Excluding India and China, retail investment demand was up 16 percent year-on-year in tonnage terms. Demand for ETFs and similar products in Q2 2012 was broadly flat over the course of the quarter, as new demand was marginally outweighed by selling. Second quarter demand for gold in the technology sector totalled 112.2t, 5 percent down on Q2 2011. At 1,059.1t, the supply of gold contracted 6 percent year-on-year, primarily due to a reduction in recycling activity. – SG/Agencies
