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Jewelry drives up demand for gold

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Nicky Loh / Reuters / File

(Read caption) A worker looks at gold bracelets at a jewelery store in Singapore in this April 2006 file photo. Demand for gold grew by 9 percent in 2010, and demand for gold jewelry accounts for 54 percent of overall gold demand.

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This week, the World Gold Council (WGC) confirmed something we’d already suspected: 2010 was a remarkable year for gold. Overall demand grew by 9 percent to reach a 10-year high on increased jewelry demand, strong momentum in key Asian markets and a paradigm shift in the official sector, the WGC says.

Demand for jewelry was the biggest contributor to gold demand, accounting for 54 percent of the total. That’s a 17 percent rise despite gold prices jumping 26 percent in many currencies. Gold demand for technology increased 12 percent. Surprisingly, investment demand declined 2 percent as investment in gold ETFs dropped 45 percent. Even with the drop, 2010 was the second-highest year on record in terms of investment demand.

India led the world in gold jewelry demand with more than 745 tons. China was a distant second at just under 400 tons and the U.S. third at 128 tons. While the pace of consumption has slowed in several countries, gold consumption for jewelry remains at elevated levels around the world.

The story behind the rise in demand is one you’ve heard from us before. The WGC’s data is validation that the love trade is firing on all cylinders.

Ignited by the Diwali Festival of Lights, Indian jewelry demand rose 47 percent on a year-over-year basis during the fourth quarter of 2010. For the year, Indian jewelry demand rose 69 percent to surpass peak levels set back in 1998.

Historically savvy gold buyers, India’s influx of buying implies an expectation that gold prices still have much higher to go. The WGC says that “Indian consumers appeared almost universally to expect that the local gold price was likely to continue rising.”

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