HardAssetsInvestor

Written by Julian Murdoch  |

February 17, 2011

Gold Demand: A Market In Flux

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The World Gold Council's latest Gold Demand Trends report reveals several surprises, including the clearest evidence to date of a divide between ETF and physical investors.

Earlier today, the World Gold Council released its quarterly Gold Demand Trends report, the go-to source for industry data on consumption patterns for the yellow metal. And the numbers confirm what many market watchers have suspected for months: 2010 was a year of superlatives.

In 2010, total worldwide gold demand surged to 3812.2 tonnes—a 10-year high and a 9 percent rise compared with 2009 levels. That increase may sound slight, until you consider the dollar value difference: With the average London PM fix in 2010 a record $1224.50/oz (2009 averaged "only" $972.30/oz), the total worth of gold market demand soared to $150 billion. That's 38 percent over 2009.

The report breaks out the demand segment-by-segment, offering several reasons for 2010's record demand levels:

Tonne by tonne, total gold demand for 2010 notched only slightly higher than 2008 levels. But dollar for dollar, the value of that demand was much higher—even when the actual physical quantity remained smaller than 2008 amounts. Case in point: jewelry.

Emerging Demand For Jewelry

A full 2060 tonnes—or 54 percent—of 2010 gold demand went to jewelry, a 17 percent rise over 2009. India emerged as the key jewelry buyer: Consumers in the traditionally gold-hungry country accounted for a staggering 745.7 tonnes, or 36 percent of global demand.

But sheer numbers alone don't make India the main story here—the growth rate of that demand is equally important.

Typically, India's fourth quarter tends to reflect higher jewelry sales due to the Diwali festival, traditionally the period of largest annual gold consumption period in the country. But in Q4 2010, Indian jewelry demand swelled 69 percent over Q4 2009 levels.

This surging demand is especially surprising given gold's high price; Indian gold buyers are generally quite price sensitive. But as the World Gold Council suggests, the rise in Indian jewelry demand in Q4 2010 might actually be because of the metal's high price, not despite it:

Jewelry demand also rose elsewhere in the emerging markets. China, the world's second-largest consumer of gold after India, bought 428 tonnes in 2010—a 14 percent rise compared with 2009. Together, these two countries account for 56 percent of world jewelry demand.