Gold Spikes As World Gold Council Says Gold Demand Surges 36% In Q2, Sees Ongoing Demand Out Of China And Europe

Tyler Durden's picture

Rumors of Gold's imminent death in a liquidation-driven collapse continue to be greatly exaggerated, and in fact the shiny metal continues to perform inversely to stocks, which take on ever more water, and is a confirmation that the market expects continued dollar destruction courtesy of the Marriner Eccles residents. And courtesy of the World Gold Council's just released Gold Demand Trends update, there is an explosion in demand for the precious metal which will likely not cease any time soon: in a nutshell, in Q2 demand for gold surged by 36% from 770 tonnes to 1,050 tonnes: a huge move, and one which solidifies the thesis for a fundamental rise in gold, aside from all the talk that gold is now just a backstop to Central Bank idiocy. Lastly, the WGC sees a huge demand coming out of Chinese consumers for gold in the future which will provide a constant bid floor: "Recent developments in China are likely to have positive longer-term implications for this increasingly important market. The PBoC, together with five other ministries/regulators published a proposal to improve the development of the domestic gold market, (“The Proposals for Promoting the Development of the Gold Market”). This further reinforces the WGC’s view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply, as discussed in our China Gold Report – Year of the Tiger, March 2010." And the firm's conclusion on demand trends: "As demonstrated earlier, gold’s relevance as a preserver of wealth is
enduring, even in conditions of relative economic optimism, since
historically gold has a capacity to provide investors with both
confidence and a sure and steady means of enhancing the consistency of
their returns."
So what was the bear case on gold again?

More from the WGC report:

Outlook

The WGC expects demand for gold to remain strong during 2010. India and China will continue to provide the main thrust of demand growth, particularly for gold jewellery.

Economic uncertainties and the ongoing search for less volatile and more diversified investments such as gold, are likely to underpin demand for investment gold in the immediate future. In particular, European retail investors appear to be making an increasingly important contribution to investment demand, with lingering concerns over public debt levels and the Euro helping to drive demand.

The WGC believes support on the demand side of the gold market is expected in coming months. First, the gold price has experienced a pullback since the end of the second quarter due to short-term profit taking and a seasonally weak period for gold jewellery. Secondly, speculative positions have turned neutral and thirdly, the third quarter tends to be a seasonally strong period for gold jewellery.

Recent developments in China are likely to have positive longer-term implications for this increasingly important market. The PBoC, together with five other ministries/regulators published a proposal to improve the development of the domestic gold market, (“The Proposals for Promoting the  Development of the Gold Market”). This further reinforces the WGC’s view that there is huge potential for gold ownership to increase among Chinese consumers, in a market with tight domestic supply, as discussed in our China Gold Report – Year of the Tiger, March 2010.

On the supply side, supportive factors suggest that total mine supply is likely to trend higher, particularly as the scope for producer de-hedging continues to diminish.

Growth in gold demand during the second quarter (+36% YoY to 1,050 tonnes) largely reflected robust gold investment demand compared to the second quarter of 2009. The climate was more favourable for gold investment with strong growth in most countries. Investment demand surged in Q2 2010 due to uncertainty in the global economic recovery and the spill over of European sovereign debt concerns, as highlighted in our previous GDT. As a result, gold investment represented the majority of total gold demand during the quarter. Net retail investment and gold ETF demand increased by 29% and 414% respectively, compared with Q2 2009 levels.

Putting China aside, the WGC focuses on Europe as a key and material new end market:

The past couple of years have witnessed an extraordinary increase in retail demand for physical gold products. European demand for gold bars and coins in 2008 was close to 243 tonnes and in 2009 rose to 293 tonnes. In previous years tonnage demand across the whole continent often failed to rise above single figures, with average per annum demand for the five years to 2008 at less than 10 tonnes. It can be argued that, while many of these buyers undoubtedly turned to gold as a ‘flight to quality’, prompted by the credit crunch and its aftermath, their return to gold has proved resilient, even as a sense of optimism has started to pervade some sectors of the investor community.

During the second quarter of 2010, European retail investment for gold demand rose 115% quarter-onquarter to 84.8 tonnes. This is the highest level since Q4 2008 and Q1 2009, when the global financial crisis triggered fresh investment demand for gold as the asset of last resort.

European retail investment demand in 2009 represented 40% of global demand from this market segment, compared to just 7% two years earlier. These higher levels of demand have been sustained into the last quarter. In Q2 2010, Europe was still the source of 35% of the world’s demand for small gold bars and coins.

Historically, gold demand from Germany and Switzerland makes up the lion’s share of the European retail market, 79% in 2009 (83% in Q2 2010). It is worth noting that the country-level data represents the location of the transaction rather than the location of the investor. The Swiss tonnage figure, in particular, is likely to reflect some demand from investors in other countries.

The WGC believes this demand is attributable to the following key factors which will continue to drive gold retail investment demand in Europe:

• Ongoing uncertainties over public debt levels in the region and continued lack of confidence in financial markets.

• Regional economic conditions. With the exception of Germany, the region’s near term economic recovery is likely to struggle to reach historical growth rates. According to the IMF’s July 2010 World Economic Outlook report, weaker economic growth is still expected in the euro zone relative to other regions and countries such as India and China.1 Employment in Europe is also projected to fall in 2010.

• Potential inflationary impact of the European Central Bank’s (ECB) announcement of a US$1tn (€750bn) rescue package, compared to the first half of 2009. Anxieties regarding future inflation have been a significant motivating factor for German investors. Although hyperinflation is not on the  horizon, the country’s poor inflation history has nevertheless left investors wary.

• Strong gold price performance, sustained across most key currencies. The poor performance of the equity markets over the last decade has driven many private investors to look beyond traditional assets and gold’s strong performance has stimulated their interest.

• Increasing awareness of gold’s role in portfolio management due to its comparatively low volatility and its lack of correlation with other asset classes. In our analysis of gold and selected equity indices in Europe since 1999, gold has consistently moved independently from the factors that  have driven the main equity markets and reliably exhibited lower volatility.

The firm's summary projections:

The WGC believes the economic uncertainty in Europe is likely to remain given the very difficult balancing act facing governments as they try to navigate a path between austerity and growth. Attempts at retaining loose monetary policy and a certain level of stimulus while seeking to address high deficit levels through dramatic cuts in public spending will present severe challenges and an uncomfortable environment for many investors. The likelihood of higher unemployment rates could further dampen domestic consumer demand.

Against this backdrop, the combination of a healthy global outlook for gold demand and the development of easier and more cost effective channels to access gold in Europe, suggests that the recent growth may be part of a sustained trend. As demonstrated earlier, gold’s relevance as a preserver of wealth is enduring, even in conditions of relative economic optimism, since historically gold has a capacity to provide investors with both confidence and a sure and steady means of enhancing the consistency of their returns.

Full WGC report

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ABCStore's picture

Unexpectedly, seasonally adjusted demand for gold is up...

knukles's picture

And just as all the other excuses are being tooled from whole bullshit, Goldman is squeezing the puss out of JPM and HSBC's perpetually increasing and more outter of the money futures and options positions just parcecs in fronrt of the COMEX options settlement date.

Think JP and HSBC have gotten their calls to the Fed and Department of Treasure yet?

Goldilocks ain't part of that racket, eh?  So, free game, no?  Hell, more like free fire zone.

 

ATG's picture

So what was the bear case on gold again?

Lopsided gold comments on ZH may be prima facie evidence we may see gold at 1050 first drop target:

http://stockcharts.com/charts/gallery.html?%24gold

How many here will admit to being bearish on stocks during March 2009 to April 2010?...

bronzie's picture

stocks are for suckers - goldbugs aren't suckers

nope-1004's picture

Ya, neither were real estate investors, especially in Japan... an island with limited land, huge population base, bustling economy, on and on.

Logic makes no sense in this environment.

Just sayin'.

 

 

Citxmech's picture

I can.  I was stacking then - and still am.

tmosley's picture

I was bearish until May of 2009 when I realized that QE was driving up the stock market.  At that point, I covered my shorts and got completely out of the market, and went all in gold and silver (though I already had good sized positions in both).  I sleep better now.  I'm a lot richer for it, too.

I wouldn't take comments on ZH as any sort of indicator.  You have no idea what kind of people are posting here.  It could be professionals, it could be students, it could be shoeshiners, or it could be industry insiders.  No way to know.  Go to Yahoo Finance boards if you are looking for contrarian data.  You can be fairly certain that there aren't a bunch of insiders hanging around there.

Geoff-UK's picture

<raising hand to ATG's question>...but I'm still crapping my pants about the future, so I'm not kicking myself too hard for missing that run.

Burnbright's picture

Gold haters converge in 3...2..1.

Dr. Richard Head's picture

You can't eat it you know and uhhhhhhh......

Dr. Richard Head's picture

It doesn't pay dividends either and ummmmm.........

ColonelCooper's picture

You have to pay a 8% premium and ummmmm......

Who else is from Prussia's picture

you have to pay storage fees and ummmmm......

Hephasteus's picture

Plus only greedy horders are into it and it's hard to steal from greedy horders. If they just put the money int he bank they can then BEG to be stolen from.

spartan117's picture

And dollars are more rare in a deflationary environment!

Quintus's picture

Yeah, and if you bought gold right at the very top of the market in the 80's you've lost money whereas if you'd bought stocks right at the very bottom of the market you'd have made a Gazillion dollars by now.

teaddy bearish's picture

and it is heavy uhhhhhhm ....

Mr Lennon Hendrix's picture

It'll put holes in your pockets, derrr.............

midtowng's picture

It's only good if civilization collapses, and if that's the case then you should be buying shotguns and canned food instead because it will be a Mad Max-type world.

So when gold went dramatically up in value in Zimbabwe in 2007, in Argentina in 2001, in Russia in 1998 and 1993, people there should NOT have bought gold because civilization ended for all time.

/snark

akak's picture

 ".... you should be buying shotguns and canned food instead because it will be a Mad Max-type world."

And not just any canned food, but specifically, canned ham!  And don't forget to bury it in your backyard!

/JBsnark

 

 

flacon's picture

Oh and you have to pay capital gains tax on it.

Hulk's picture

Why should we have to pay capital gains on what is essentially a devaluing dollar?

Fuckers...

Hephasteus's picture

It's the mathematical formula

Fuck you = I win

MsCreant's picture

Oh, Oh, me next! They will COOOONFISTCATE it from meeee. Moooomeeee that Jackboot tookeses my GOOOOOLD.

CrockettAlmanac.com's picture

Your gold isn't gold, it's tungsten, steel or lead.

Frank Owen's picture

The alchemists have nearly perfected turning lead into gold and then all your gold will be worthless...

Hulk's picture

Icelandic Volcano spewing rivers of gold....

fiftybagger's picture

Sir Alan Greenspan doesn't believe in it anymore

Hephasteus's picture

He's not really knighted. He just fell asleep at the castle and the queen grabbed the knighting sword to cut his apple up for when he woke up, and he was all like crying and so happy he was being knighted so they faked it.

knukles's picture

Yeah yeah yeah yeah....
And there's no reason under the sun that we, the New Peasantry serving the New Versailles should ever ever need or even want any gold for ourselves.  After all, the Powers that Be, their Central Banks and Monetary Authorities have all the gold we'll ever need on deposit for Us in some of the most secure facilities in the World.

Why forever would we even think of it being valuable by any rational, considered or even illusory, foolish, demented, insane stretch of the imagination?

They have and always will take care of us out of their own most significant Godless Statist Altruistic Instincts.

Relax.  It's only a sort walk from your bunk to the propagandavision screen.

 

Hulk's picture

Fuck you twice = (I win)^2

Devalue our money and then tax us for creating a workaround

Unfuckingbelievable... I have had it with supporting loosers

fiddler_on_the_roof's picture

That is the rules of the game being played. Our Forefathers were much smarter than as***les we have become - hence I am a Traditionalist. Money which devalues at x% against unit labour when deposited in bank is given (x-delta)% interest rate. So right there we will be loosing delta% every year. On top of that you pay tax for the (x-delta)% interest you receive. total con game.

DosZap's picture

Hulk,

Because you always PAY tax on income, no matter the source derived.

(Unless you are a Obama cabinet member,A Fed member, or  a Senator,Representative, or an IRS employee).Oh, wait, they just prosituted one of them.

Hulk's picture

I am planning to be the next treasury secretary.(Paulson saved roughly half a billion in taxes by becoming TS) Will be in charge of a half empty,pink piggy bank...

ColonelCooper's picture

You may count on me to be your first vote for confirmation.  And don't worry; your piggy bank will be plenty full.  Too bad it will be full of little IOU's scribbled on cocktail napkins.

caconhma's picture

<you have to pay storage fees>

Why? Bury it in your backyard.

After all, it does not rust (another way to know you have the right stuff).

Cyrano de Bivouac's picture

Burying in backyard is called midnight gardening.

MarketTruth's picture

And ummm... is gladly accepted as a form of exchange in MANY parts of the world as a universal currency (seriously, try it for yourself). In fact, you may indeed get additional discounts on goods/services when using gold as a form of payment.

Who else is from Prussia's picture

Fact: During WWII pilots were given survival packs which contained gold to barter their way out of a situation after they bailed out of the aircraft, no FRNs

Fact: Currently military pilots survival packs contain gold to barter their way out of a situation after they bailed out of the aircraft, no FRNs.

Sooo the government / military industrial complex thinks gold is better than FRNs too.

Treeplanter's picture

Somebody better tell timmy the tax cheat.

ATTILA THE WIMP's picture

Exactly! Gold was even included in the survival kit for pilots in "Dr. Strangelove."

http://www.youtube.com/watch?v=F5qqfsQGYus

swmnguy's picture

"Shoot, a fella could have a pretty good weekend in Vegas with all this stuff."

Citxmech's picture

Best scene in the whole movie besides Slim Pickens riding the bomb...

maff's picture

It was originally "Dallas", later dubbed to "Vegas". Look at how his lips move when he says the line.

ColonelCooper's picture

It would take a pretty good discount to get me to spend physical while my cash is still good. 

trav7777's picture

you could, um, just turn around and buy more physical with the cash you still have

ColonelCooper's picture

That's the point.  Since I'm trying to accumulate physical, I'd have to replace it.  Better be a helluva discount to bother in the first place.

fiddler_on_the_roof's picture

I understand the sarcasm here, know it is preaching to the converted, but wanted to point out that only for holdings that lose value, should we expect interest. Assetts like Gold, Real Estate, commodities which hold value over very long time in terms of unit labour, we need not expect interest rates unlike currency bonds or savings account which are denominated in currencies. Currencies don't hold value against unit labour hence to compensate, we need interest.