Gold barsARND WIEGMANN/Reuters
Economic uncertainties, together with China's push to get its citizens to buy more gold, should keep demand for the precious metal strong through the year, according to the World Gold Council.
Global demand for bullion during the second quarter increased by 36 per cent, to 1,050 tonnes, driven by investors who sought both diversification from corporate stocks and a haven during a period of rising sovereign debt and unstable economic activity.
Investment in gold more than doubled in the three months ended June 30 from the same period a year earlier, thanks largely to a surge in buying of shares of bullion exchange-traded funds. Net retail investment rose by 29 per cent while purchases of gold ETF shares rocketed 414 per cent, the London-based council said.
Investors purchased 291.3 tonnes of gold in ETFs during the second quarter, the second-largest inflow to date, bringing total holdings to more than 2,000 tonnes, worth more than $81-billion (U.S.). The lion's share of that amount, more than $50-billion, lies in the SPDR Gold Shares trust, which was created by the World Gold Council itself, though a subsidiary, in November of 2004.
The council represents the major gold mining companies and aims to stimulate and sustain the demand for gold. Gold has always been considered one of the best ways to mitigate financial risk, but the headaches associated with owning the physical asset (storage, security, etc.) historically tempered demand. The creation of bullion ETFs six years ago has greatly broadened the availability of gold investments.
China represented one of the strongest retail investment markets last quarter, with demand soaring 121 per cent to 37.7 tonnes from a year earlier. The World Gold Council attributed the increase to the poor performance of China's stock and real estate markets, as well as efforts by the government to spur domestic interest in the precious metal.
The Industrial Commercial Bank of China recently signed an agreement with the World Gold Council to help promote domestic demand for gold through new investment products. China is also using television advertising to encourage its growing middle class to buy gold as an investment. The ad campaign is a major shift from only a few years ago when the country imposed strict controls on precious metals purchases by its citizens.
Other regions showing strong investor appetite for bullion included Germany, up 59 per cent, and the United States, up 32 per cent. Only three countries registered a decline in gold investment, the largest being Japan, where profit taking generated a sell off of a net 20 tonnes in the three-month period.
Breaking down global demand for bullion into three main categories, the World Gold Council said overall investment purchases rose 118 per cent, industrial use increased 14 per cent, and jewelery demand fell 5 per cent.
Southeast Asian markets showed the biggest decline in demand for gold jewellery. Industrial demand was led by a rise in orders from the electronics sector, specifically from semiconductor producers supplying manufacturers of computers, smart phones, e-readers, LCD televisions and Apple Inc.'s iPad, the council said.
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The average price of an ounce of gold reached $1,196.74 in the second quarter, representing a 30-per-cent rise from the same period in 2009. Large gold mining companies such as Newmont Mining Corp., Agnico-Eagle Mines Ltd. and Barrick Gold Corp. moved to capitalize on strong pricing by bringing online new operations or ramping up production. Global mine production increased by 5 per cent to 658.5 tonnes. Recycling activity also rose, reaching 496 tonnes, a 35-per-cent increase from a year earlier.
Overall, global supply climbed by 17 per cent to 1,132 tonnes in the second quarter, the World Gold Council reported.
Central banks, which had shown signs of selling holdings earlier in the year, were net purchasers in the quarter, adding a total of 7.7 tonnes to their reserves, while the International Monetary Fund sold 47 tonnes. As of June 30, the IMF had disposed of 283.1 tonnes of the total 403.3 tonnes it has earmarked for sale as part of an international agreement penned last year.