Fears of future inflation and ongoing financial uncertainty led investors to continue to flock to gold in the first quarter of 2009, seeking out its proven wealth preservation qualities, according to the World Gold Council (WGC).
Total demand for gold in Q1 ’09 rose 38 percent year on year to 1,016 tonnes, representing a 36 percent rise in value terms to US$29.7 billion.
According to figures published today by the WGC in its Q1’09 Gold Demand Trends report, identifiable investment demand for gold, which includes exchange traded funds (ETFs), and bars and coins, was the major source of growth in the quarter, reaching 596 tonnes, up 248 percent from on Q1 ’08.
The figures, compiled independently for WGC by GFMS Limited, reveal a record level of investment into ETFs with demand soaring 540 percent to 465 tonnes at a value of US$13.6 billion.
“There has been a seismic shift away from capital appreciation towards wealth preservation and we believe this trend will define investment behavior in the next decade. Gold, as one of the few assets that has held its value during the current economic crisis, has been sought out by investors who are drawn to its proven protective attributes as well as safeguarding themselves from the erosive effects of future inflation," said Aram Shishmanian, CEO of World Gold Council.
“The shift in the balance of demand that we have witnessed this quarter, where the gold price has risen despite a severe drop in jewelry and industrial demand, perfectly demonstrates the robust nature of gold’s fundamental supply and demand dynamics."
Net retail investment (total bar and coin demand) remained highly robust, rising 33 percent year on year to 131 tonnes, despite some bar and coin dishoarding in eastern markets as investors took profits.
Germany was the single biggest bar and coin market in Q1 ’09, where demand rose 400 percent from Q1 ’08 to 59 tonnes, with inflation concerns being a key buying motivator. Switzerland was the second-largest bar and coin market, up 437 percent to 39 tonnes from Q1 ’08, followed by the United States, rising 216 percent to 27.4 tonnes.
The impact of the recession on consumer discretionary spending continued to take its toll on both jewelry and industrial demand. Gold jewelry demand was down 24 percent on year earlier levels, with most countries suffering a decline as consumers responded to the high and volatile gold price, which reached record levels in some countries, compounded by difficult economic conditions.
China bucked this trend recording a positive 3 percent growth in jewelry demand. This reinforces the view that China’s economy, although unquestionably suffering from a sharp deceleration, nonetheless remains resilient relative to most other nations.
Total demand in India, traditionally the world’s largest gold market, declined significantly under pressure from record rupee prices and a major deterioration in the domestic economy. Demand fell 83 percent on year-earlier levels to just 17.7 tonnes.
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