Gold Stays Strong Despite Volatility


Houston: Notwithstanding fluctuating prices and a volatile year for gold in 2011, the demand for the precious metal has remained stronger than ever, with India, China and Europe being pre-eminent markets. According to the World Gold Council's (WGC's) annual report, the gold demand totalled 4,067.1 tonnes, a slight increase from the previous year. Record low interest rates, inflation expectations and investment demand continued to drive the gold bull market. The main driver for the increase was the investment sector where annual demand was 1,640.7 mt, up 5 per cent on the previous record set in 2010, and with a value of USD 82.9 billion. The pre-eminent markets for investment demand in 2011 were India, China and Europe. "Overall it was an impressive year," WGC's Managing Director of Investment, Marcus Grubb, said. "It's largely an investment, Central Bank (buying) and China/India story," he said. The annual value for gold demand in 2011 equalled USD 205.5 billion, an all-time high and a 29 per cent gain above the 2010 value. Jewellery accounted for USD 99 billion in gold demand, while investment demand was close behind with nearly USD 83 billion. Interestingly, the majority of investment demand value was due to physical bar and coin demand, which represented USD 75 billion. As more investors remain sceptical and lose confidence in the global financial system, they turn to physical gold for protection. The annual WGC report explains, "The bar and coin story is one which has traversed borders led by China, India and Europe, but other markets have also participated in terms of relative growth rates. "Store of wealth demand, diversification, negative real deposit rates, the threat of inflation in developing markets, deflation in developed markets and currency debasement have all contributed to driving up demand over the last few years." In 2011, the price of gold averaged USD 1,571 per ounce, which was more than 28 per cent higher than its 2010 equivalent. While this contributed to the record annual value for gold demand, it also proved an argument against gold to be incorrect. Many gold critics claim that as gold prices increase, the supply of gold will also increase from people selling any form of gold they might hold.
Source: PTI