Gold Demand Drops in Q2 (GLD, IAU, GDX, GDXJ)

Compared with the second quarter of 2011, demand for gold fell 7% by a total of nearly 76 metric tons, to 990 metric tons, in the second quarter of 2012, according to the World Gold Council’s quarterly report on gold demand. Investment demand fell by 88.2 metric tons and jewelry demand fell by 72.3 metric tons. Demand from central banks increased by 157.5 metric tons. The average price was 7% higher than a year ago at $1,609.49 per ounce.

By sector, demand for gold in the jewelry sector was down 15% year-over-year, with most of the drop attributed to India and China. Investment demand for bullion and ETFs declined by 23%, again largely on weaker demand from India and China. Central bank buying more than doubled with demand primarily coming from emerging markets. And in the technology sector, demand fell by 5% as substitutes are being used for the pricey yellow metal.

On the supply side, 1,059 metric tons were available in the quarter, down 6% year-over-year and flat sequentially. Mine production accounts for 706 metric tons, flat with mine production last year. Gold recycling accounts for most of the rest of the supply, but recycling was off 12% year-over-year at 364 metric tons.

The SPDR Gold Shares ETF (NYSEMKT: GLD) is down nearly 8.5% for the past 12 months, as is the iShares Gold Trust (NYSEMKT: IAU). And as weak as these have been, gold mining stocks are even worse, with the Market Vectors Gold Miners ETF (NYSEMKT: GDX) down more than 25% and the Market Vectors Junior Gold Miners ETF (NYSEMKT: GDXJ) down 43%.

Even though gold is attractive to central banks in emerging countries, the demand there cannot make up for the loss of jewelry demand in India and China. As the global economy continues to contract, so does demand for gold, whether as a store of value, as an investment, or as jewelry.

The report from the World Gold Council is available here.

Paul Ausick