China, ETFs, and Central Banks Supporting Gold Price and Demand

The World Gold Council has released its first quarter report on global gold demand.  Some of the report may be as most expected, but the report also contains some interesting tidbits when you consider that spot gold ended the first quarter around $1,660 per ounce and it now sits down around $1,550 per ounce.

As you may have expected, gold demand actually shrank in the first quarter of 2012 according to this gold data and the drop was down 5% from the high demands of the first quarter in 2011.

The decrease in gold demand was expected due to import taxes in India and high gold prices, but what is interesting is that gold’s demand value was up 16% year over year. The figure was put at $59.7 billion globally and the Council noted an average gold price up 22% year over year to $1,690.57 for the quarter.

The issue that helped support gold were increased demand in China, as well as continued central bank purchases, and inflows into exchange-traded funds.

China’s investment and jewellery demand reached 255.2 tonnes, up 10% on the previous year’s levels, and China accounted for 30% of the global jewelry demand.  Conversely, jewelry demand was down 19% in India, with Indian investment demand down a whopping 46%.  The World Gold Council predicts that China will become the largest source of demand for gold in 2012.

Central bank buying was 80.8 tonnes with purchasing gains in Russia and Kazakhstan.  Mexico was the largest addition with a single purchase of 16.8 tonnes.

Demand from ETFs and other investment products was 51.4 tonnes worth about $2.8 billion.  The SPDR Gold Shares (AMEX: GLD) site lists that it holds 1,276.6 tonnes with a total value of just over $63.5 billion as of May 17.

Market Vectors Gold Miners ETF (AMEX: GDX) measures the companies which explore and mine the world’s new gold.  Shares are up almost 4% at $41.11 after bottoming out just above $39.00 over the last two days but this mining ETF was actually up at $50.00 as recently as April 2.

JON C. OGG