Gold Performance Reflects Economic Climate Posted by Adam King on August 20, 2012
August 20, 2012 – The global gold demand in the second quarter of 2012 reflected a 7 percent drop from the second quarter of 2011 at 990 tons from 1,065 tons, according to the World Gold Council report released on Thursday.
Exceptionally strong demand last year is partially attributed to the drop, but the challenging global economic climate is given as the major reason for the changes we have experienced in the gold market.
Gold performed on an asset basis as expected, both as a store of value and a source of liquidity for investors seeking protection from the trouble in the markets.
For the year, gold demand in terms of value was relatively stable, however. At $51.2 billion in the second quarter of 2012 from $51.6 billion in the same time period last year, gold has not lost ground in terms of value. The average price of gold this quarter was $1,609.49 per troy ounce, a full 7 percent higher than the average in the second quarter of 2011.
The report also found that investment and jewelry demand in India dropped to 181.3 tons from 294.5 tons at the same time last year, a significant drop that has influenced the global gold market greatly. Indian jewelry demand registered a drop of 30 percent on the year, a significant contribution to the lack of demand in the Indian market as the weak rupee and droughts forced Indian populations to wait out the market and keep cash on hand.
Chinese investment and jewelry demand dropped 7 percent from 156.6 tons to 144.9 tons in the same quarter last year. A lack of upward momentum in the gold price and a slowing domestic economy discouraged Chinese consumers from buying gold jewelry, which registered a 9 percent decline on the year.
The debt crisis in the Eurozone brought about a persistent and growing conviction in gold as a means of capital preservation, however, with demand for bars and coins from retail investors up 15 percent on the year to 77.6 tons. The number reflects a 19 percent higher rate of demand than the five-year quarterly average.
Official sector demand in the quarter reached a record high of 157.5 tons, double the level in the second quarter of 2011 and accounting for 16 percent of overall global demand. Central banks across the world enlarged reserves in gold, including the central banks of the Philippines, Russia, and Ukraine.