How Gold Demand Remains Resilient

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Recently by Frank Holmes: Managing Expectations: Why Gold Should Thrive

Demand for gold was relatively resilient in the first quarter of 2012, with global demand falling 5 percent on a year-over-year basis, says the World Gold Council. Marcus Grubb, managing director of investment, calls this slight quarter decline in demand “noise in the context of 22 percent rise” in the price of gold compared to first quarter of 2011. Also, gold demand was very strong in the first three months of last year.

Gold faced a complex quarter, as you can see by looking at jewelry demand by country. There was a significant rise in demand for jewelry from Russia, Egypt, Indonesia, Taiwan, and China, according to the World Gold Council (WGC) compared to the first quarter of 2011.

Demand from Russia, which increased 28 percent compared to the same time last year, not only reflects stock building, but WGC says consumers had the wind behind their backs, with “historically low inflation, GDP growth, improving consumer confidence and real wage growth.”

The WGC says that Taiwanese jewelry demand was driven by “a strong wedding season, Chinese New Year gifting and gifts for babies born so far during this auspicious Year of the Dragon.” Indonesia’s increase also most likely reflects Chinese New Year, as retailers replenished supply after a strong buying season.

And, for the second quarter in a row, overall Chinese demand was higher than Indian demand, confirming China as the world’s largest gold market, says Mr. Grubb. China’s demand in the first quarter hit a record, bucking “the global trend by surging 10 percent to reach a new quarterly high” equating to 255 tons, according to the WGC.

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Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc. The company is a registered investment adviser that manages approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in U.S. Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

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