By Claudia Assis, Aug. 25, 2010, 1:01 a.m. EDT
SAN FRANCISCO (MarketWatch) — Gold demand reached 1,050.3 metric tons in the second quarter, 36% higher than the same quarter in 2009, mostly thanks to soaring investment demand, a report from the World Gold Council showed early Wednesday.
Economic uncertainties around the world are expected to provide continued support for gold, said the council, an industry group backed by leading gold mining companies.
These concerns led investors to gobble up gold in the second quarter, the World Gold Council said. Demand for gold-backed exchange-traded funds rose 414% compared to the second quarter of 2009. Retail investment demand rose 29% in the same period.
Investors are making the switch from buying gold only in times of crisis to having gold as part of a diversified portfolio, said Jason Toussaint, a managing director for the World Gold Council.
“Gold is the ultimate diversifier,” he said. “Correlation to U.S. equities is zero” in addition to its proven ability to not only hold value in times of crisis but increase.
Gold prices hit a record high June 18, when the most-active contract settled at $1,258.30 an ounce in the New York Mercantile Exchange. Prices settled at $1,233.40 an ounce on Tuesday, a 2% decline.
But the high prices for most of the second quarter hurt jewelry demand, which declined 5% compared to the same quarter a year earlier.
Second-quarter gold supplies reached 1,131 metric tons, 18% higher on-year, the World Gold Council said.
Recycled gold coming onto the market rose 35% to 496 metric tons as the rising price of the metal “encouraged consumers to sell their existing holdings,” the group said.
Industrial usage of gold rose 14%, mainly thanks to a 24% increase in demand for gold in the electronics sector. Gold is used in a variety of consumer electronics, including smartphones.
India and China, traditionally big gold consumers, are expected to continue to provide the “main thrust” of demand, but European retail investors “appear to be making an increasingly important contribution to investment demand,” the World Gold Council said.
That’s because ongoing worries about sovereign debt levels in Europe and a wobbly euro have helped drive demand, the group said.
Meanwhile, support for gold prices from China is expected to rise in light of the recent government proposal to develop the Chinese domestic 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,” the group said.