Gold demand fell 7.1 percent in the second quarter as investment slid and Asian jewelry purchases declined amid higher local prices and concern about economic growth, the World Gold Council said.
Global demand dropped to 990 metric tons in the quarter compared with 1,065.8 tons a year earlier, as investment slid 23 percent and jewelry fell 15 percent, the London-based industry group said in a report. Jewelry consumption should pick up in Asia during the second half this year on seasonal wedding and festival purchases and as economic growth improves, it said.
Gold fell 4.3 percent in London in the second quarter as commodities plunged the most since 2008 and investors favored the dollar amid mounting concern about Europe’s debt crisis and global expansion. Investors are still holding a near-record amount in gold-backed exchange-traded products and central banks will buy close to 500 tons this year after adding the most to reserves since becoming net buyers in 2009, the council said.
“Gold persisted to be very expensive for Indian consumers because of the weak rupee and that’s choked off demand,” Marcus Grubb, managing director of investment research at the council, said by phone from London.
“The continuing economic problems around the world have started to rekindle expectations of some easing of policy. With a seasonal likelihood of stronger demand in India and then in China, the second half is going to be stronger than the first half for the gold market.”
Gold for immediate delivery traded at $1,603 an ounce at 3:33 p.m. Wednesday in London, up 2.5 percent this year. Prices averaged $1,611.88 in the second quarter, up 6.8 percent from a year earlier and 4.7 percent lower than the first quarter.
World investment, including gold bars, coins and exchange- traded products fell to 302 tons in the three months through June, the council said. Coin and bar demand accounted for the bulk of investment, with ETP holdings little changed, the report showed. European bar and coin demand rose 15 percent to 77.6 tons, the data show.
Nations from Russia to Ukraine to Kazakhstan added to their gold holdings this year. Central banks bought 157.5 tons in the quarter, compared with 66.2 tons a year earlier, the council said. That took first-half additions to 254.2 tons.
Jewelry use slipped to 418.3 tons in the second quarter from 490.6 tons a year earlier, the council said. Jewelry demand from India, 2011’s biggest buyer, plunged 30 percent to 124.8 tons, accounting for 30 percent of the global total. A weaker rupee versus the dollar meant that average local second-quarter bullion prices in India were 29 percent higher than a year earlier, data compiled by Bloomberg show. Indian jewelers held a strike in March and April to protest government taxes on imports.
Total Indian demand was 181.3 tons in the latest quarter, 25 percent more than China’s, the biggest buyer the previous two quarters. The council reiterated its prediction that China will become the top consumer this year on an annual basis, with demand reaching almost 850 tons versus about 700 tons for India.
Mine output rose 0.4 percent to 706.4 tons in the second quarter from a year earlier, the council said. Scrap supply declined 12 percent to 363.7 tons in the period, the lowest level since the first quarter last year.
“It’s expectation of a higher price in the future,” Grubb said, referring to the drop in scrap production. “The easy recycling has been done. You need a higher price to tempt more out.”
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