Higher gold prices weigh on demand

Weighed on by a higher US dollar price and an uncertain economic outlook, global demand for gold fell 14.3% to 729 tonnes during the second quarter, according to the latest Gold Demand Trends report put out by the London-based World Gold Council (WGC).

On the consumer side global jewelry demand was off 15.8% at 580.8 tonnes and retail investment fell 11.7% to 56.8 tonnes. Industrial demand slipped 6.4% to 74.4 tonnes while dental demand provided the lone bright spot, edging up 0.4% to 17 tonnes. Despite the overall decrease, higher prices meant the dollar value of the quarter’s demand volume managed to climb 0.1% to US$7.33 billion. During the quarter, gold averaged US$312.70 per oz., US$45 per oz. better than a year earlier.

Much of the overall decline in demand is attributed to India, the world’s largest consumer, where a higher rupee price for the yellow metal sent jewelry demand down 37.2% and investment demand 58.5% lower. Overall demand was off 40.5% at 126.9 tonnes on price volatility, which sent1 consumers to the sidelines.

On the flip side, investment offtake in Japan climbed 107% to 18 tonnes as investors shied away from the Japanese banking industry and precarious stock market. Jewelry demand fell 7%. In all, demand was 40% higher.

South-east Asia also saw overall demand climb by 17.1%, as investment climbed 30.3% and jewelry offtake rose 13.6%. Indonesia led the pack with an overall increase of more than 55% thanks to a drop in the domestic price of gold on a strengthening rupiah.

The picture was brighter in Turkey where both jewelry (plus 97.4%) and investment (93.6%) demand nearly doubled, while remaining below the record levels of earlier years, on an improving economy and increased tensions in the Middle East.

Those tensions and economic concerns pushed investment demand in the United States up by 41.4%; jewelry demand was little changed gaining just 1.1%. At 70.2 tonnes overall demand was just 2.8% higher. Price rises and uncertainty over the changeover to the Euro sent offtake 9.6% lower in Europe.

:Looking ahead, the WGC sees political uncertainties and economic woes continuing to underpin investment demand over the short run. Barring further price gains, jewelry demand is expected to recover, as is industrial demand, once economic recovery gains steam.