Gold demand will continue for rest of 2010

NEW DELHI - The allure of gold as an investment instrument is expected to stay strong in India and elsewhere in the world this year, the World Gold Council said Wednesday.

Gold jewellery demand in India, the world’s largest jewellery market, slipped only a modest 2 percent at 123 tonnes despite the precious metal touching record-high prices, translating into Rs.216 billion in sales during the quarter ended June.

However, gold’s attractiveness as an investment instrument did not dampen with net retail investment off-take rising by 7 percent to 41.5 tonnes in the April-June quarter, compared to 38.9 tonnes in the like quarter of 2009.

This translated into a rise of 30 percent in the value of investment demand, rising from Rs.56 billion to Rs.73 billion.

“The increase in demand for investment products was primarily driven by positive price expectations among Indian retail consumers,” said the Gold Demand Trends report of the Council.

Gold, with its low volatility and lack of correlation with other assets, provides confidence to investors in terms of ensuring a sure and steady return in their portfolios.

The Akshaya Trithiya festival in the first week of May helped to buoy jewellery demand, as this is considered a highly auspicious time for buying gold. However, the high price took its toll in June and demand tailed off as consumers preferred to wait for less volatile price moves.

“When considered in light of the record highs in the local gold price reached during the quarter, the 2 percent tonnage decline suggests that jewellery demand was surprisingly robust,” the council said.

The high prices, however led to a 20 percent increase in the value of gold sold at Rs.216 billion.

India’s total demand for gold stood at 164.5 tonnes for the quarter ended June, compared to 164.2 tonnes in the quarter ended June 2009.

“With the exception of exchange activity (exchange of old jewellery for new, which is not captured in the demand and supply numbers), Indian consumers appeared to be targeting even higher prices as a trigger for selling back their holdings of old gold,” it added.

For the rest of the year too, gold demand in the country is expected to be robust, as other investment instruments loose their sheen in the wake of a global crisis of confidence in economies of the developed world.

“India and China will continue to provide the main thrust of overall growth in demand, particularly for gold jewellery, for the remainder of 2010,” said the report.

“The combination of a healthy global outlook for gold demand and the development of easier and more cost effective channels to access gold in Europe, suggests that the recent growth may be part of a sustained trend. As demonstrated earlier, gold’s relevance as a preserver of wealth is enduring,” it added.

Total global demand for gold demand in the quarter under review rose by 36 percent to 1,050 tonnes, largely reflecting strong gold investment demand. In dollar terms, the demand increased 77 percent to $40.4 billion.