Asian buying set to lift gold demand in 2011 - WGC

Gold demand is set to stay high this year as Indian and Chinese appetite for the metal sharpens, but fresh buying in developed markets of jewellery in particular will depend on economic outlook, the World Gold Council said.

In its 2010 Gold Demand Trends report, released on Thursday, the WGC said demand hit a decade high of 3,812.2 tonnes in 2010 as jewellery buyers returned to the market after the previous year's near-absence and central banks became net buyers.

Early indications this year suggest buying interest in main consumers India and China will stay firm, it said.

"I think 2011 as a whole has a healthy outlook," said Eily Ong, investment research manager at the WGC.

"We continue to see the two largest markets, China and India, driving the market. There have been rising income levels, still-high saving rates and we still think strong economic growth will continue to push up gold consumption."

The largest segment of gold demand, jewellery buying, rose 17 percent to 2,059.6 tonnes last year despite record-high prices. Demand was particularly strong in the largest gold market, India, with Indian demand up 69 percent to 745.7 tonnes.

Indian consumer demand -- which includes smaller coins and bars as well as jewellery -- was up 66 percent to 963.1 tonnes, while in China, it rose 29 percent to 607.1 tonnes.

Jewellery demand was soft last year after a hefty price rise, but seems to be recovering despite a further 30 percent climb in spot prices last year.

Gold traded at $1,374.60 an ounce late on Wednesday, having hit a one month high of $1,381.84 an ounce, but still down around three percent since the beginning of the year.

"The jewellery sector enjoyed a very strong recovery in 2010," said Ong. "This is very encouraging... it seems consumers, particularly the largest consumers, India and China, have adjusted to higher price levels."

"Appetite is still non-stop, particularly in China," she added. "From what we see at the start of the year, the trend is still ongoing."

However, demand was softer in other key gold buying centres, such as the United States, where jewellery buying slipped 14 percent last year, Italy, where it fell 16 percent, and the Middle East, where it dipped 7 percent.

A recovery in jewellery buying there in 2011 will be dependent on economic conditions, Ong said.

"In the United States there has been some weakness due to the lack of economic growth, and in the Middle East because of the higher gold price," she said.

"(A recovery) really depends on economic growth. At the moment, it is too early to say whether we will see a pick-up, but the trend so far has been weak."

INVESTMENT DEMAND FLATTENS

Investment demand, which surged in 2009 as the global financial crisis gripped markets, boosting demand for the metal as a haven from risk, levelled out last year.

Gold investment eased 2 percent to 1,333.1 tonnes, while gold buying for physically-backed exchange-traded funds fell 45 percent from the previous year's record level to 338.0 tonnes.

ETF buying tailed off towards the end of the year, with fourth-quarter demand amounting to only 3.6 tonnes compared to 38.7 tonnes in the third quarter and 291 tonnes in the second.

"We see very strong demand for physical bars, and that is mainly coming from the Asian markets," said Ong.

"If you look at the other components, in ETFs there has been a 45 percent year-on-year fall, but 2009 was a remarkable (year) for ETFs and similar products and the demand figure we have is the second highest figure (on record)."

More supportively, central banks turned net buyers of gold in 2010 for the first time in 21 years, as banks in emerging markets added to reserves and sales by the European official sector, for many years a key supplier to the market, dried up.

The official sector absorbed some 87.2 tonnes of gold last year, while in the previous year net sales, chiefly from the International Monetary Fund, amounted to 29.8 tonnes.

Total supply last year increased slightly to 4,108.2 tonnes, up 2 percent from the previous year.

(Source: http://www.sify.com/finance/asian-buying-set-to-lift-gold-demand-in-2011-wgc-news-others-lcrnEgcchfe.html)