H1, Q2 physical demand for gold falls, investment gains: WGC

H1, Q2 physical demand for gold falls, investment gains: WGC

London (Platts)--16Aug2006

Physical demand for gold fell by 23% in the second quarter compared to
the same period in 2005, while statistics compiled by GFMS for the World Gold
Council showed that demand fell by 16% in the first half when compared on
year.
Figures for investment and demand in value terms posted decent rises
while market sentiment was identifiably strong and should continue in this
fashion for the remainder of the year, the WGC said Wednesday.
Identifiable investment demand for gold in the second quarter of 2006
rose by 19% in tonnage terms compared with the same period last year to 130
mt, driving the total value of investment demand for gold in the 2006 first
half by 40% to $6.1 billion.
Gold jewelry demand rose by 12% in value terms to $11.4 billion for the
quarter and by 6% for the first half to $20.8 billion. Many consumers,
manufacturers and retailers remained sensitive to price volatility, showing a
reluctance to commit to purchasing that resulted in a 24% fall in second
quarter demand year on year in tonnage terms to 562 mt, and a 23% fall in the
first half to 1,090 mt when compared year on year. This drop in gold jewelry
demand in volume terms affected overall demand for gold, which was down 16% to
802 mt in the second quarter on the same period in 2005. First half demand
also fell by 16% to 1,635.7 mt. The average price of gold for the quarter was
up by 47% year on year.

GEOPOLITICAL, ECONOMIC H2 PICTURE FAVORABLE FOR INVESTMENT
The WGC identified that the political and economic climate remains
favorable to gold investment. It suggests that the fundamentals of the market
are perceived as strong and the diversification benefits of gold are being
increasingly recognized. "Prospects for gold jewelry demand will depend very
heavily on future price volatility. A period of price stability should see a
recovery in the volume of demand and further growth in value. Consumers will
return to the market once they perceive that the period of exceptional price
volatility is over," the statement read.
Increased investment brought added another element of volatility to the
gold price, which, at an average of $627.71/oz for the quarter, was 13% higher
quarter on quarter and 47% higher than in the same period in 2005. The WGC
figures show that Exchange Traded Funds (ETFs) saw an investment of $789
million in the second quarter of 2006. The streetTRACKS Gold Shares ETF,
listed on the New York Stock Exchange, held 371.9 mt of gold worth $7.3
billion at the end of June 2006. The WGC said that volatile prices affected
the market for coins and bars in the second quarter of 2006. The impact of
price movements varied between countries and between investment products. It
identified a substantial amount of selling back of bars in Japan. While in
contrast, the market for new coins was more buoyant in Turkey. Demand in the
US was also strong. Demand for official coins increased 64% on the same period
last year. Solid growth was also seen in medallions and imitation coins, a
market concentrated in the Middle East and India.
--James O'Connell, james_oconnell@platts.com

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