Investors push gold demand over $200 billion

Gold demand exceeded $200 billion (€152 billion) for the first time in 2011, driven partly by a 5% increase in demand from the investment sector, according to an annual report from the World Gold Council.

Investment demand reached 1,640 tonnes last year, or 40% of the total, with the rest mainly used for jewellery. Investors tend to buy gold in times of uncertainty because the metal is seen as a ‘safe haven’ that holds its value in times of stress. Some investors see gold as a hedge against inflation.

The biggest consumer of gold is India, where the metal is important for religious and cultural reasons, as well as being seen as a good investment. China is the second-biggest market and looks set to overtake India this year, said Marcus Grubb, managing director of investment at the World Gold Council.

Investment demand from China leaped 69% during 2011, which may be due to the country gradually loosening its capital controls.

Demand from Europe also increased and the council hinted it was the eurozone crisis that had pushed investors to buy gold. Germany and Switzerland were the main drivers of growth, it said, commenting that “the need for asset protection continues to be a priority”.

An increasingly popular way to gain exposure to gold is via an exchange-traded fund (ETF) that tracks the gold price. One such fund, the SPDR Gold Trust operated by State Street Global Advisors, is the second-biggest ETF, according to BlackRock, with more than $70 billion in assets under management in January.

Gold currently costs about $1,720 an ounce, which is more than double its price at the beginning of 2008. Gold peaked at above $1,800 in the second half of 2011, but has since proved quite volatile, dropping to below $1,600 at the start of 2012.

However, some analysts say that, adjusting for inflation, the gold price has yet to match the peak it reached in 1980.

“What we can see from these 2011 figures is that there were two main factors driving the results: Asian growth and optimism on the one hand and western desire to protect assets against uncertainty on the other,” said Grubb.

©2012 funds europe



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