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World Gold Council: Demand Still Strong—But Changing

The World Gold Council has just released its Gold Demand Trends for the second quarter of 2011.

Gold
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Gold

According to the report, global consumers bought 919.8 metric tons of gold in the second quarter, a decrease of 17 percent compared to the same period in 2010, and a decline of about 5 percent from the first quarter.

The report indicates there may be changes in the way gold is being bought.

Gold demand (buying):
(Q2 YOY)

  • Jewelry up 6 percent
  • Technology up 2 percent
  • Bars up 13 percent
  • Official coins down 7 percent
  • ETFs down 82 percent

Source: World Gold Council

Two trends stand out: interest in owning gold bars is increasing, and ETFdemand has been gyrating up and down for the past several quarters.

What's up with ETF demand?

Look at these gyrations in demand:
(in metric tons, rounded off):

2010:

  • Q1 5
  • Q2 297
  • Q3 49
  • Q4 22

2011:

  • Q1 -62
  • Q2 52

Whew! That is significant gyration — notice there were OUTFLOWS from ETFs in Q1 2011 (when George Soros was reportedly a seller).

What happened with the big increase in Q2 2010? There was a near-frenzy of gold buying as investors sought protection from the European debt crisis. ETFs were the main beneficiary.

The key point: despite the gyrations, total holdings in gold ETFs in tons have been fairly flat for the past four quarters (there was a slight decline in Q1 2011). At the end of the second quarter, gold ETFs held a little less than 2,200 tons of gold, about where it was a year ago. Of that, about 60 percent was in one fund: the SPDR Gold Trust.

Who's buying all this gold? While global demand for gold decreased by 17 percent compared to the same period last year (in metric tons), there's a real shift going on in global gold buying.

Gold—Q2 consumer demand:
(jewelry, bar and coins: in tons, Q2 YOY)

  • India up 38 percent
  • China up 25 percent
  • USA down 22 percent
  • Europe down 48 percent

Source: World Gold Council

That's right — the Indians and the Chinese are now major players in the global gold market. How major?

The Chinese and the Indians together accounted for 52 percent of global gold bar and coin investment and 55 percent of global jewelry demand.

Where's all this gold coming from? About two-thirds of the supply came from mine production — in other words, new gold produced. The remainder was recycled gold: investors turning in gold in exchange for cash, which is then melted down and sold on the world market. Central banks — which have been sellers of gold in the past — have been net buyers recently.

I interviewed Marcus Grubb, managing director of investments for the World Gold Council, onThe CallThursday morning. Watch interview here.

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