The World Gold Council (WGC) expects that demand for gold will be strong during 2010, driven by growing jewellery demand in China and India as well as an increase in European and US investment.

According to WGC’s Gold Demand Trends report, demand in India and China will continue to grow, driven by jewellery demand, in spite of high local currency gold prices. In Q1 2010, India was the strongest performing market as total consumer demand surged 698 per cent to 193.5 tonnes. In China, demand proved resilient; demand increased 11 per cent in Q1 to 105.2 tonnes.

This strong demand is despite high local gold prices, which on May 12 in India increased to Rs56,032/0z, the highest level for the year, while at the same time in China prices reached an all-time high of RMB8,480/oz, suggesting that consumers in India and China are becoming accustomed to higher gold prices.

Concerns over Greece’s public finances and debt contagion fears in Europe have led to strong buying in particular for gold coins, bars and gold exchange traded funds (ETFs) during May which may show up in the Q2 figures.

While momentum in ETF tonnage paused during Q1, gold ETF flows started to rise strongly again in April and May as investors sought less volatile investments in which to protect their funds against economic turmoil.

On May 20, SPDR Gold Shares (GLD) held a record 1,200 tonnes, with a value of $46.9 billion.

“Currently, European gold investment demand is exceptionally strong, especially from German and Swiss investors. This is mainly attributable to concern over public debt levels in the Eurozone and the potential inflationary impact of the European Central Bank’s (ECB) announcement of the $1 trillion rescue package to purchase Eurozone government bonds to address the Greek debt crisis,” said Aram Shishmanian, CEO of the World Gold Council.

“With the global economic recovery still burdened by high and rising debt levels in Western economies, as well as the renewed threat of recession driving down the US dollar and equities, the outlook for gold as a liquid, reliable asset class and as a store of wealth remains highly favourable.”

According to the WGC, global jewellery demand in non Western countries will continue to recover after reaching 470.7 tonnes in Q1 this year. Economic recovery in Europe and the US will add to this demand, as a potential return to restocking in the jewellery sector is likely, given that existing inventories have been run down since the first half of 2009 to very lean levels. This should provide fundamental support to the gold price.

“The diversity of demand for gold, both by sector and geography ensures that the outlook for gold remains strong for the remainder of 2010.”

Whilst total investment demand during Q1 2010 fell in comparison with Q1 2009, this decrease was driven by the very strong level of demand in Q1 2009 for investment particularly ETFs. This exceptional activity created a bias for the total demand figures for Q1 2010 when ETF demand paused. However, the strong recovery in jewellery demand which was driven by China and India in Q1 2010, combined with recent high inflows into ETFs, has created a firm basis for an optimistic outlook for the remainder of 2010.

Demand statistics for Q1 2010
• While the volume of total identifiable gold demand was down 25 per cent on Q1 2009 levels at 760.2 tonnes, in US$ value terms, the decline was a more moderate 9 per cent.
• Consumers are more comfortable with a higher local price environment, borne out by demand in non-western markets where jewellery demand increased 43 per cent.
• Indian jewellery demand rose 291 per cent to 147.5 tonnes, there was continued strong demand from China and signs of recovery in Turkey and the Middle East.
• Net retail investment demand, which covers retail bar and coin demand, was 26 per cent up on the first quarter of 2009 at 182.5 tonnes.
• Industrial and dental demand was up 31 per cent at 103.2 tonnes, driven by a solid recovery in the electronics and other industrial sectors owing to the improved economic conditions.-TradeArabia News Service