Asia set to drive strong gold demand in 2010: WGC

Gold consumption is set to stay strong in 2010, with India and China providing the main thrust to demand growth and investment increasing, the World Gold Council said in a report released on Wednesday.



The WGC said in its second-quarter Gold Demand Trends report that it believes a retreat in prices from the record USD 1,264.90 hit in June, better seasonal demand for the metal and a more neutral speculative picture all bode well for demand.







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\"Because of the uniqueness that it provides in portfolio management, in terms of diversification, low volatility and lack of correlation with other assets, gold has the capacity to provide confidence to investors in terms of ensuring a sure and steady return in their portfolios,\" Eily Ong, research manager at the World Gold Council, told Reuters.



The WGC said the major Asian economies, China and India, are set to be the driving force behind gold demand, especially for jewellery. A recent proposal by China to develop gold trade in the country is likely to have a positive impact on consumption.





\"Jewellery consumers have become accustomed to higher prices, compared to 2008 and 2009,\" said Ong. \"We have seen a recovery in the Indian jewellery market, which is still the strongest in the world.\"



\"We have seen a strong market in China, and a recent pick up in the U.S. as well,\" she added. \"2010 demand will be strong.\"



The WGC said in the report that an argument could now be made that Indian demand was in recovery, as the%age change in jewellery demand in the year to end June versus the previous twelve months continued to improve.



Elsewhere, global gold jewellery consumption fell just 5% to 408.7 tonnes in the second quarter, the WGC said, despite a rise in prices to record highs in that period.



Indian gold jewellery consumption eased 2% to 123 tonnes, while jewellery offtake in Greater China -- comprising China, Hong Kong and Taiwan -- rose 5% to 82.3 tonnes.



Chinese net retail investment more than doubled in the same period to 37.7 tonnes from 14.7 tonnes.



Investment jumps



Overall gold investment demand more than doubled in the second quarter to 534.4 tonnes, the WGC said, representing 51% of total identifiable demand of 1,050.30 tonnes for the period.



In the second quarter of 2009, investment represented just 32% of overall demand, while jewellery accounted for 56% of total consumption.



At 408.7 tonnes, jewellery\'s share of total demand slipped to 39% in the second quarter of 2010.



Investment demand in Europe was particularly strong as the euro zone sovereign debt crisis hit in the second quarter. European gold retail investment more than doubled quarter-on-quarter to 84.8 tonnes.



This represented 40% of global demand from this market segment, the WGC said, compared with 7% two years earlier, while Europe was the source of a third of demand for small gold bars and coins.



\"The retail channels across Europe are still relatively undeveloped,\" said Ong. \"When we see further development of easier and more cost effective channels to access gold in Europe, that growth will be sustainable.\"



Demand for gold exchange-traded funds rose strongly in the second quarter, up 414% to 291.3 tonnes from 56.7 tonnes in the second quarter of 2009. This was the second-highest quarterly growth rate ever, after the first quarter of 2009.



On the supply side of the market, total mine output edged up 6% in the second quarter to 644 tonnes. Official sector selling turned into buying, with central banks acquiring a net 8 tonnes of gold in the second three months of the year.



Recycled gold volumes rose 35% to 496 tonnes from 366 tonnes a year ago, reflecting higher prices tempting sellers to the market.



However those volumes were below the record 606 tonnes of recycled material returned to the market in the first quarter of 2009.




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