LONDON: The World Gold Council (WGC) expects that demand for gold will be strong during 2010, driven by growing demand for jewellery in China and India as well as an increase in European and US investment in the context of continued economic instability, sovereign risk and the threat of a 'double dip' recession.

According to WGC's Gold Demand Trends report, published today, demand in India and China will continue to grow, driven by jewellery demand, in spite of high local currency gold prices. In Q1 2010, India was the strongest performing market as total consumer demand surged 698% to 193.5 tonnes.[i] In China, demand proved resilient; demand increased 11% in Q1 2010 to 105.2 tonnes. and

This strong demand is despite high local gold prices, which on 12 May in IndiaRs 56,032/oz, the highest level for the year, while at the same time in China prices reached an all-time high of RMB8,480/oz, suggesting that consumers in India and China are becoming accustomed to higher gold prices. 

Concerns over Greece's public finances and debt contagion fears in Europe have led to strong buying in particular for gold coins, bars and gold exchange traded funds (ETFs) during May which may show up in the Q2 2010 figures. While momentum in ETF tonnage paused during Q1 2010, gold ETF flows started to rise strongly again in April and May as investors sought less volatile investments in which to protect their funds against economic turmoil. On 20 May, SPDR Gold Shares (GLD) held a record 1,200 tonnes, with a value of US$46.88 billion.

Aram Shishmanian, CEO of the World Gold Council commented: "Currently, European gold investment demand is exceptionally strong, especially from German and Swiss investors. This is mainly attributable to concern over public debt levels in the Eurozone and the potential inflationary impact of the European Central Bank's (ECB) announcement of the US$1 trillion rescue package to purchase Eurozone government bonds to address the Greek debt crisis."

"With the global economic recovery still burdened by high and rising debt levels in Western economies, as well as the renewed threat of recession driving down the US dollar and equities, the outlook for gold as a liquid, reliable asset class and as a store of wealth remains highly favourable."

According to the WGC, global jewellery demand in non Western countries will continue to recover after reaching 470.7 tonnes in Q1 2010. Economic recovery in Europe and the US will add to this demand, as a potential return to restocking in the jewellery sector is likely, given that existing inventories have been run down since the first half of 2009 to very lean levels. This should provide fundamental support to the gold price.

Aram Shishmanian continued: "The diversity of demand for gold, both by sector and geography ensures that the outlook for gold remains strong for the remainder of 2010. Despite increasing gold prices, consumers in China and India will continue to drive market growth, particularly in jewellery. In Western markets, the uncertain economic outlook and sovereign risk fears will add further impetus to growth in investment as investors seek to protect wealth. In the instance that we continue to see elevated levels of risk around the world, however, investment demand will remain strong in 2010."

Whilst total investment demand during Q1 2010 fell in comparison with Q1 2009, this decrease was driven by the very strong level of demand in Q1 2009 for investment particularly ETFs. This exceptional activity created a bias for the total demand figures for Q1 2010 when ETF demand paused. However, the strong recovery in jewellery demand which was driven by China and India in Q1 2010, combined with recent high inflows into ETFs, has created a firm basis for an optimistic outlook for the remainder of 2010.

DEMAND STATISTICS FOR Q1 2010:

    - While the volume of total identifiable gold demand was down 25% on Q1
      2009 levels at 760.2 tonnes, in US$ value terms, the decline was a
      more moderate 9%.

    - Consumers are more comfortable with a higher local price environment,
      borne out by demand in non-western markets where jewellery demand
      increased 43%.

    - Indian jewellery demand rose 291% to 147.5 tonnes, there was continued
      strong demand from China and signs of recovery in Turkey and the
      Middle East.

    - Net retail investment demand, which covers retail bar and coin demand,
      was 26% up on the first quarter of 2009 at 182.5 tonnes.

    - Industrial and dental demand was up 31% at 103.2 tonnes, driven by a
      solid recovery in the electronics and other industrial sectors owing
      to the improved economic conditions.

The full 2010 Q1 Gold Demand Trends report, which includes comprehensive data for the first quarter 2010, can be viewed at: http://www.mediacentre.gold.org