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, the World Gold Council (WGC) said in a new report on Wednesday. According to the WGC's Gold Demand Trends report for Q2 2010, demand for gold for the rest of 2010 will be underpinned by the following market forces: • India and China will continue to provide the main thrust of overall growth in demand, particularly for gold jewelry, for the remainder of 2010. • Retail investment will continue to be a substantial source of gold demand in Europe. • Over the longer-term, demand for gold in China is expected to grow considerably. A report recently published by The People's Bank of China and five other organizations to foster the development of the domestic gold market will add impetus to the growth in gold ownership among Chinese consumers. • Electronics demand is likely to return to higher historic levels after the sector exhibited further signs of recovery, especially in the US and Japan. Marcus Grubb, managing director, Investment at the WGC, said: “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. Further, in light of lingering concerns over public debt levels and the euro, European retail investor demand has increased significantly.” He noted that “over the past quarter, demand for gold jewelry in key Asian markets has been challenged by rising local prices. 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.” Ajay Mitra, managing director, India, Middle East and Turkey at the WGC, said: “While demand in the Middle East was mixed for the second quarter, we have witnessed growth in gold jewelry demand in Saudi Arabia, where the local population appears to be buying in anticipation of further price increases. In addition, we witnessed an increase in demand in the UAE around Akshaya Tritiya.” Demand in Egypt was 15 percent down on year-earlier levels as the higher gold price took its toll. However, on a half-year basis, demand for the first half of 2010 was 2 percent above H1 2009, as tourist numbers recovered during the first six months of the year. The report said total gold demand1 in Q2 2010 rose by 36 percent to 1,050 tons, largely reflecting strong gold investment demand compared to the second quarter of 2009. 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 Q2 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, it said. Physical gold bar demand, which largely covers the non-western markets, rose 29 percent from Q2 2009 to 96.3 tons. Global jewelry demand remained robust in Q2 2010. In the face of surging price levels, consumption totaled 408.7 tons during the second quarter of 2010, just 5 percent below year-earlier levels. Gold jewelry demand in India, the largest jewelry market, was little changed from year-earlier levels, down just 2 percent at 123.0 tons. In local currency terms, this translates to a 20 percent increase in the value of demand to Rp216 billion. China saw demand for gold jewelry increase by 5 percent to 75.4 tons3. 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 to RMB 19.8 billion. With the return of demand for consumer electronics, industrial demand grew by 14 percent to 107.2 tons, compared to Q2 2009. Grubb added that “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. 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.” Global jewelry demand totaled 408.7 tons during the second quarter, equal to a decline of 5 percent from year-earlier levels. The decline in the four-quarter percentage change was also 5 percent. This was the smallest decline in the rolling four-quarter performance since the first quarter of 2008, indicating a deceleration in the pace of decline in global jewelry demand. In value terms, global jewelry demand increased 23 percent from $12.8 billion in Q2 2009 to $15.7 billion. Jewelry off-take was lower across most markets, with just a handful of countries bucking the trend to post an increase over Q2 2009. However, a consideration of global jewelry demand in value terms paints a different picture, with only five markets experiencing a decline in the US$ value of gold jewelry off-take. The Southeast Asian markets of Thailand, Indonesia and South Korea sustained the worst losses in Q2 gold jewelry demand as consumers in these markets proved to be particularly susceptible to the high price level. In Thailand there is evidence that consumers are shifting from jewelry to purchases of bars and coins, while in Indonesia consumers are increasingly content to purchase lower and lower carat gold jewelry as affordability is their main concern. Vietnamese demand performed slightly better, but at 3.2 tons was still 11 percent below year-earlier levels as the price rise took its toll. Hong Kong recorded the largest rise in tonnage jewelry demand (+34 percent YoY) as it recovered from the very weak levels of Q2 2009. Gold jewelry demand in India, the largest jewelry market, was little changed from year-earlier levels, down just 2 percent at 123 tons. In local currency terms, this translates to a 20 percent increase in the value of demand to Rs216 billion. When considered in light of the record highs in the local gold price reached during the quarter, the 2 percent tonnage decline suggests that jewelry demand was surprisingly robust, although on a historical basis second quarter demand of 123 tons is relatively low. Average second quarter demand over the five year period Q2 2003 - Q2 2007 was 182.1 tons. The Middle East region had a mixed quarter, with Saudi Arabia (+5 percent YoY) witnessing a rise in gold jewelry demand as the improved domestic economic scenario boosted consumption, while the other Gulf group of countries underperformed markedly (-25 percent YoY). In the UAE (-15 percent YoY), the Akshaya Trithiya festival met with good interest, but demand tailed off in response to high and rising prices during the second half of the quarter. Across much of the Middle East region, it seems to have been the expat Indian population that reacted most strongly to the higher price level, while in Saudi Arabia the local population were less price-sensitive and, indeed, seemed to be buying into the rising price in anticipation of further gains, the report noted. Demand in Egypt was 15 percent down on year-earlier levels as the price took its toll there. However, on a half-year basis, demand for the first half of 2010 was 2 percent above H1 2009, as tourist numbers recovered during the first six months of the year. Turkish consumers took their cue from the gold price in Q2 2010. Hence the 20 percent drop in tonnage demand to 16.2 tons as local prices surged 28 percent during the quarter, reaching record levels in June. The quarter witnessed high levels of recycling activity and jewelers continued to look for more ways to decrease the gold content in jewelry pieces in order to reach certain price points. Turkish consumers took their cue from the gold price in Q2 2010; hence the 20 percent drop in tonnage demand to 16.2 tons as local prices surged 28 percent during the quarter, reaching record levels in June. The quarter witnessed high levels of recycling activity and jewellers continued to look for more ways to decrease the gold content in jewelry pieces in order to reach certain price points. Italian consumers remained very cautious in the face of anemic signs of economic recovery. Gold jewelry off-take slipped 23 percent from year-earlier levels, to 5.2 tons. In local currency value terms, demand was up by 7 percent to €188million. In the US, gold jewelry demand edged down to 26.1 tons from 27.5 tons in the year earlier period. In value terms demand increased by 23 percent to $1 billion, demonstrating that consumer interest in the intrinsic value of gold is translating into increased spending on jewelry. However, consumers remain cautious given record gold prices and the uncertain economic environment. Gold demand for industrial and dental applications showed signs of further recovery in the second quarter, registering a 14 percent increase over Q2 2009. Electronics demand, which bore much of the brunt of the economic downturn in 2009, was the chief driver of this rise, buoyed by ongoing inventory restocking and fresh demand for new technologies. The electronics segment, which dominates gold's industrial demand, registered another robust rise in Q2 2010 in a clear indication that the industry is recovering from the recession led losses sustained in early 2009. Following the 40 percent jump in Q1 2010 off-take, demand in Q2 rose by almost 25 percent from year-earlier levels, with demand for the first six months of 2010 increasing by more than 30 percent on the corresponding period last year. However, genuine new demand is responsible for much of the quarter's hefty gain and, according to industry analysts it is this area of the market that will provide the impetus for further gains in 2010 and beyond. Demand for semiconductors (using gold bonding wire) has continued to rise, with numbers boosted by sales of personal computers, mobile phones and corporate information technology, plus a modest rise in demand from the automotive industry.
