Global gold demand trend

Recent developments in China are likely to have positive longer-term implications for the increasingly important gold market, said the report from Word Gold Council (WGC).The council view that there is huge potential for gold ownership to increase among Chinese consumers, in amarket with tight domestic supply, as discussed in our China Gold Report –Year of the Tiger, March 2010.On the supply side, supportive factors suggest that total mine supply is likely to trend higher, particularly as the scope for producer de-hedging continues to diminish. "Growth in gold demand during the second quarter (+36 per cent Year-on-Year to 1,050 tonnes) largely reflected robustgold investment demand compared to the second quarter of 2009," said the WGC.The climate was more favourable forgold investment with strong growth in most countries. Investment demand surged in second quarter in 2010 due to uncertaintyin the global economic recovery and the spill over of European sovereign debt concerns.As a result, gold investment represented the majority of total gold demand during the quarter. Net retail investment and gold ETF demand increased by 29 per cent and 414 per cent respectively, compared with second quarter of 2009. The total mine output net of producerhedging increased by a moderate six per cent YoY despite a 30 per cent YoY increase in the average gold price. Mine supply, which remains the largest contributor on the supplyside, has failed to track the increase in gold price sincemine supply last peaked in fourth quarter of 2005.On the other hand, recycling flows increased by 35 per cent YoY to 496 tonnes inthe second quarter of 2010. However, this level is stillbelow the record quarterly supply achieved in first quarter of 2009 of 606 tonnes.