Gold purchases up 36% as investors look to preserve wealth

Wednesday, May 20, 2009

The World Gold Council’s “Gold Demand Trends” for the first quarter of 2009 reports a record level of gold investment and inflationary fears and financial uncertainty saw investors flock to gold. Jewellery, however,was down by 24% as the recession continued to take its toll with India more than halving and China becoming the world’s largest jewellery consumer.

“Gold Demand Trends”, which is compiled for the World Gold Council by independent research house GFMS Ltd., records that total tonnage demand for gold in the first quarter of the year rose by 38% year-on-year, while in value terms the increase was 36%. This was driven by a 248% rise in ETFs, bars and coins to 596 tonnes with ETFs (up 540%) accounted for 465 tonnes of gold absorption. Net retail investment was up 33% to 131 tonnes despite some dishoarding in eastern markets.

The largest investor in coin and bar was Germany, where inflationary fears saw demand quadruple to 59 tonnes, while Swiss growth was even higher at 437%, taking it into second place at 39 tonnes. The US came in third, more than doubling to 27 tonnes as investors hedged against financial and economic risk.

The impact of this surge in investment demand meant that coins+bars and ETFs accounted for 554 tonnes during the quarter, a massive increase of 472 tonnes against the first quarter of last year. This more than offset a 122-tonne decline in jewellery demand, which was 352 tonnes against 475 tonnes in Q1 2008. Investment demand for coins and bars in India turned to disinvestment as 17 tonnes were returned to the market. Three other countries were net disinvestors during the quarter, namely Japan, Indonesia and Thailand, while in 18 of the countries surveyed investment demand was lower in the first quarter of this year than in the Q1 2008. Despite this, global investment demand increased by 53 tonnes or 59% overall, with the largest percentage increases registered in Europe, where demand rose by more than six-fold.

In percentage (and tonnage) terms, the largest fall in jewellery demand came from India, which more than halved to just 35 tonnes – and the first quarter of 2008 had itself been relatively weak. For at least twenty years India has been the world’s largest jewellery consumer as gold has a religious significance as well as maintaining its role as an investment-come-risk-hedge, but in this past quarter demand for new gold dried up with consumers generally preferring to exchange or sell gold jewellery rather than making fresh purchases. The domestic economy has started to be affected by the global downturn, especially in terms of unemployment among expatriates; this has affected income levels and constrained discretionary purchases such as gold jewellery. Furthermore, the Council argues, gold fulfilled its role as an investment as consumers “took profits” on existing jewellery holdings that had been purchased at lower prices. As a result Indian demand in the first quarter of this year was just 10% of total, while China, where conditions were buoyant, increased its market share to 26%.

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