Gold demand trends for 2010, expectations for 2011

The World Gold Council has released the following summary of factors that drove gold demand in 2010, and expectations for 2011. The full Gold Demand Trends report for 2010 can be found at www.gold.org.

Global gold demand in 2010 reached a 10-year high in tonnage and an all-time high in value, with strong demand across all sectors. Gold demand for the year amounted to 3,812.2 tonnes worth about US$150 billion. On Nov. 9, this demand led to a new record gold price of US$1,421 per oz. on the London PM fix.

Key factors

The jewelry sector enjoyed a strong recovery in 2010, with annual demand 17% higher than in 2009. Asian consumers drove jewelry demand, particularly in China and India. Chinese demand is expected to continue to increase rapidly during 2011 as economic growth in China remains strong, while Indian gold jewelry demand is likely to remain resilient and grow.

Asian consumers led demand with the revival of the Indian market and strong momentum in Chinese gold demand, which together constituted 51% of total jewelry and investment demand during the year.

A structural shift in central bank policy towards gold meant that in 2010 central banks became net buyers of gold for the first time in 21 years, removing a significant source of supply to the market.

Investment demand was down 2% compared with 2009, but was the second highest year on record at 1,333 tonnes, which equated to US$52 billion. Investment demand for gold as a foundation asset in portfolios is likely to remain strong, fuelled by ongoing uncertainty surrounding global economic recovery and fiscal imbalances, as well as fear of impending inflationary pressures and currency tensions.

Gold demand statistics

Gold demand in 2010 reached a 10-year high of 3,812.2 tonnes. Demand was up 9% year-on-year, and marginally above the previous peak of 2008 despite a 40% increase in the annual average price level between 2008 and 2010. In value terms, total annual gold demand surged 38% to a record of US$150 billion.

Jewelry demand was remarkably robust in the face of record prices in the majority of currencies. Annual demand for gold jewelry rose 17% from 1,760.3 tonnes in 2009 to 2,059.6 tonnes. The rise in annual average prices over the same period was 26%. In value terms, this resulted in record annual jewelry demand of US$81 billion.

Investment demand, comprising bar and coin demand, exchange-traded funds (ETFs) and similar products, but excluding over-the-counter investment demand, remained stable in 2010, down just 2% from the exceptional levels seen in 2009. This equated to a 23% rise in value terms from US$43 billion in 2009 to US$52 billion in 2010. Physical bar demand was particularly strong during the year, recording an annual gain of 56% at 713.2 tonnes.

Demand for gold ETFs and similar products totaled 338 tonnes during 2010 or 9% of total demand. Although this was 45% below the 2009 peak of 617.1 tonnes, it was nevertheless the second highest annual figure on record. As the end of 2010, total gold holdings in ETFs and similar products stood at 2,175 tonnes with a value of US$96 billion.

Demand for gold used in technology was 419.6 tonnes, 12.4% higher than in 2009 as the electronics segment fuelled recovery in the sector, with demand returning to long-term trend levels. Demand soared by 41% year-on-year to a record US$17 billion.

India was the strongest growth market in 2010. Total annual consumer demand of 963.1 tonnes registered growth of 66% relative to 2009, which was largely driven by the jewelry sector. In value terms this was worth US$38 billion.

China was the strongest market for investment demand growth. Annual demand for small bars and coins increased by 70% year-on-year, totaling 180 tonnes, which is worth about US$7 billion.

Total supply is estimated to have increased marginally, 2% higher year-on-year for the full year 2010, with several new projects in many countries and regions contributing to higher levels of mine supply. Within total supply, recycled gold, which accounts for 40%, fell 1% compared with the previous year to 1,653 tonnes.