Wednesday, August 24, 2011

Demand for Gold in Second Quarter - Q2 2011

Gold - The Shining Yellow Metal that has captivated the fancy of rich and poor alike has been one of the most sought after metals in the history of mankind. In my blog, we have been seeing articles on buying Gold and other precious metals. This article is about the Gold Demand in the quarter that just ended (2nd Quarter of year 2011).

Gold’s strong start to the year was reinforced during the second quarter of 2011 where total global gold demand measured 919.8 tonnes, worth a near-record US$44.5bn, with broad-based support across all sectors and geographies. Standout markets were India and China, as these two markets accounted for 52% of total bar and coin investment and 55% of global jewellery demand, the World Gold Council announced today.

Though the demand of gold was 17% less than the corresponding period Q2 2010, the value of gold that was used grew by 5% (because of higher gold prices). Healthy growth in jewellery demand and modest gains in demand from the technology sector were offset by a Year-on-Year decline in investment, mainly from the ETFs and other investment products. Although they attracted sizable net purchases in Q2 2011, ETFs were unable to match the levels of investment recorded in Q2 2010.

What was the Mining production of Gold in Q2 2011?

Mine production rose again in this quarter. Up 7% to 708.8 tonnes from the 659.4 tonnes in the comparative period. Growth in production was widespread, with increases noted across all geographic regions due to a number of new start ups as well as improved output capacities of existing mining operations.

The Quarter that has been for Gold:

Gold Price reached a series of new record highs during the second quarter and the average price for the period was up 26% year-on-year and up 9% when compared to the previous quarter (Q1 2011). Similar to Q1, the price did not rise in a straight line and saw some notable intra-quarter price action. After reaching a high of USD $1541/oz in early may, gold corrected back to below USD $1500/oz. However, gold was relatively protected from the sharp sell-off that affected many other commodities and the dip provided jewellery consumers and investors with an opportune entry point.

Gold price resumed its ascent during May and most of June as European policy makers wrestled with the potential prospect of a Greek default and equity prices crashed worldwide. After setting a new record at USD $1552.50/oz, gold retreated back towards USD $1500/oz providing a final boost to the gold demand at the close of the quarter.

Two markets stood out, one again as major contributors to the overall growth. They were India and China. These two markets alone accounted for 52% of global bar and coin investment and 55% of global jewellery demand. Year-on-year volume growth in total consumer demand was 38% in India and 25% in China. The numbers speak for themselves because; the global growth rate was only 7%.

There was also positive demand for gold from the official sector. Net purchases of 69.4 tonnes demonstrated that central banks continued to turn to gold to diversify their reserve assets.

ETFs and similar investment products had a demand of 51.7 tonnes in Q2 2011. This was a solid demand but when compared to the purchases done by ETFs in Q2 2010, the growth was a bit sluggish in this sector.

Investment demand for bars and coins was a robust 307.7 tonnes across the globe. Especially European countries turned to gold to protect their reserves amidst the financial crisis that is looming over them.

Are Asian Countries outshining the rest of the world in their love for Gold?

Well, yes. If you read the previous paragraph, you would have seen that India and China alone accounted for 52% of the global gold bar and coin investment and 55% of global jewellery demand. So, it is safe to say that Asian countries are obviously outshining the rest of the world in their love for this yellow metal. Let’s look at some more statistical details...

1. Purchase of Gold from the Central banks of countries like Vietnam, Indonesia, South Korea and Thailand has seen an increase of 28% when compared to last year
2. Investment and jewellery in Asia are often viewed as one and the same. Auspicious buying of jewellery or gold bars has a tendency to bear similar motives like wealth preservation, savings, insurance for a rainy day etc. However, of late there has been a steady increase in amount of purchases made for investment (coins and bars) when compared to finished jewellery
3. Countries South Korea set themselves apart from the rest of the world when it comes to Gold and Technology. As a major global manufacturer of semiconductors, technology demand for gold amount to 47.9 tonnes in 2010 out of which 33.4 tonnes was for electronics alone. Globally, South Korea currently ranks fourth place in the use of gold in electronics

Sector wise Global Demand for Gold in Q2 2011:

There are 3 main Sectors which influence the global demand for Gold. They are:
1. Jewellery - Second quarter gold jewellery demand rose by 6% year-on-year to 442.5 tonnes, equivalent to US$21.4 billion in value terms
2. Investment (Gold bars & Coins) - The demand for gold for investment purposes (Coins, bars and gold ETFs) was a total of 359.4 tonnes, 37% down year-on-year, although a 18% rise when compared to the previous quarter. This translates to a value of US$17.4 billion, 21% below the record US$22.1 billion seen in Q2 of 2010
3. Technology - Demand for gold used in technology returned to growth in the second quarter, recording a modest 2% year-on-year increase. Demand in value terms was up 28% to a quarterly record of US$5.7 billion

For a more detailed view on the Sector wise demand for Gold, check out the next article. Sector wise Demand for Gold

Gold Supply:

The total gold supply in Q2 2011 was 1058.7 tonnes, 4% down when compared to Q2 2010. Mine production stood at 708.8 tonnes which was 49.4 tonnes or 7% above Q2 2010 . The remaining elements of supply all experienced net decrease when compared to Q2 2010.

Similar to the previous quarter, the distribution of gains in mine production was widespread geographically with positive contributions from all regions. Increases were particularly strong in Africa as Randgold Resources Tongon mine in Cote d'Ivoire, which poured its first gold in November, benefited from an increase in average ore grade. Production at Nevsun's recently established Bisha mine in Eritrea also contributed to growth after coming on stream in February. Mine operations in Ghana and Burkina Faso also generated growth.

A number of new starts in Canada bolstered production there and North America’s Barrick's Cortez mine benefitted from increased mill throughput. Higher throughput at Newmont's Boddington mine and Catalpa Resources' Edna May operation both contributed to growth in Australian gold production.

Further increases in mine production were seen in Russia, Kazakhsthan, Turkey, Papua New Guinea, Mexico and Chile.

Recycling activity in Q2 was fairly subdued and remained 3% down year-on-year and only slightly above the past 10 quarter average of 407.3 tonnes. The decline in recycling activity is due to the bullish price expectations in the price of Gold.

Demand Projection for the Second Half of 2011:

Gold demand in the second half of 2011 will remain strong owing to a number of key factors:

1. Despite a higher gold price, Indian and Chinese demand grew 38% and 25% respectively during Q2 2011 compared to the same period of 2010. This growth is likely to continue, due to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals.
2. The impact of the European sovereign debt crisis, the downgrading of US debt, inflationary pressures and the still-fragile outlook for economic growth in the West are all likely to drive high levels of investment demand for the foreseeable future.
3. Central banks are likely to remain net purchasers of gold. Purchases of 69.4t during Q2 2011 demonstrated that central banks are continuing to turn to gold to diversify their reserves.

(C) All Rights Reserved. All statistics published with the permission of the World Gold Council. Unauthorized publication or reproduction of the contents in this article without the written consent of the Author is not allowed.

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