Demand for gold at a two year low

Demand for gold all over the world was 990 tons on a global level, the lowest level in the last two years, amounting to 51.2 billion dollars, according to a report of the World Gold Council. Compared to the previous quarter, demand was 10% lower, whereas compared to last year's similar period, it fell 7%, in terms of volume, according to the report. In terms of value, demand marginally fell compared to Q2 2011. In the first semester, demand for gold, reached 2,091 tons, 5% below the level seen during that period.

Gold purchases for making jewels fell 15% between June 2011 and June 2012, to 418.3 tons. The decline was almost generalized, caused predominantly by prices being higher than in the second quarter of 2011. The market which accounted for most of the drop was that of India, where the price decrease was abrupt, as the price of gold reached the record level of 30,000 rupees for ten grams, the Gold Council says. The jewelry segment generated 42% of the demand for gold in the second quarter.

Gold demand for jewelry production reached 906.4 tons in the first half of the year, down 13% over last year's similar period.

Demand in the second quarter was 21.6 billion dollars, 9% lower YOY.

The technology sector generated a demand for gold 5% lower compared to the second quarter of 2011. The value of demand was 5.8 billion dollars. Compared to the previous quarter, the recorded growth was 3%.

Demand for gold was constrained by a combination of factors, such as the escalation of problems in Europe, with Spain being the focus of attention, the tepid reduction of unemployment in the United States, as well as the slowdown of the Chinese economy, which have affected consumer confidence, the representatives of the Global Gold Council explained.

All the technological segments have seen a drop between June 2011 and June 2012. Demand for the production of electronics and household appliances, which generates 70% of the demand for the technological sector, fell 4% compared to the second quarter of 2011, to 80.5 tons, due to the worsening of the economic conditions on a global level. The demand for other industrial and decorative uses fell 8%, to 21.6 tons, due to the two-figure contractions of several key markets. Demand for dental gold continued to drop, shrinking 7% over 12 months, to a historic low of 10.1 tons. The evolution of the latter was determined by the fact that the precious metal was replaced by cheaper materials, as well as by the improvement of oral hygiene, the report states.

• Investments in gold fell 25%

Investments in gold fell 23% in the second quarter, compared to last year's similar period, to 302 tons, worth 15.6 billion dollars. In the first quarter, demand was 709.4 tons, 3% higher than in the similar period of 2011. The only segment which did not see a decline was that of official coins, where demand was stimulated by a few countries, according to the World Gold Council.

Demand for gold bullion and coins fell 10% in the second quarter of 2012 compared to the second quarter of 2011. The countries which played the most important part in that evolution were China and India, the report states. Only six countries saw contractions on that segment.

In the case of investment products, such as ETFs, demand stagnated for the most part, with the new acquisitions being marginally exceeded by the sales. This evolution reflects the lack of direction of the quotation of gold, which encouraged both the profit taking, and the search for undervalued assets, the authors of the report state.

OTC investments and the fluctuations of stocks generated 59.6 tons, 11% more than in the second quarter of 2011. The demand for this segment, was focused on accounts denominated in gold, with the prices being close to the limit of the quarterly variation range, generating interest from investors, they said.

• Central banks doubled their gold acquisitions

Central banks bought 157.5 tons of gold in the second quarter, more than double compared to the similar period of last year. The quarterly purchases are the highest since the central banks became net buyers, in the second quarter of 2009, according to the report by the World Gold Council. The weight of the state sector in the total demand for the second quarter was 16%.

In the first half of this year, the central banks bought 254.2 tons of gold, 25% more than in the similar period of 2011.

Certain banks have made public their intention to increase their gold reserves, the WGC says. One such example is the Central Bank of Kazakhstan, which said in July that it has increased its acquisition target for this year from 24.5 tons to 26 tons. The institution had previously announced that it intends to buy its entire domestic gold output for the next 2-3 years, to reduce its reliance on the US dollar as a reserve asset, confirming the 15% target for the gold allocations in the total of the currency reserve.

The Russian Central Bank has increased its gold reserve by 22.3 tons between April and June, to 920 tons, the equivalent of 9% of the total reserves.

• Gold supply fell 6%

Gold supply in the second quarter was 1,059 tons, unchanged compared to the previous quarter and 6% lower compared to the similar period of last year, according to the similar CMA report. Mining production has climbed three tons, to 706.4 tons. Considering the hedging of the net producers, the mining supply fell 3%, to 695.4 tons.

The stagnation of mining output is caused by the peaking of the supply from new mining operations. The representatives of the CMA expect output to remain in the consolidation phase this year, before the beginning of a new round of operations, scheduled to begin next year. The mining supply has also been constrained by the extreme climate conditions, disruption of mining in several operations, as well as the slower increase of the output of some mines, they said.

Recycled gold reached 363.7 tons, down 12% over Q2 2011, the report also says.