In the third quarter, we are going to see strong investment numbers, because of the European crisis, the debt downgrade in the United States and poor economic figures coming from the United States which have created a concern in investors' mind that we may be heading back to another recession, World Gold Council Managing Director for Investment Marcus Grubb said.

It sends liquidity into gold, Grubb said in a telephone interview.

David Lamb, WGC managing director for jewelry, said economic gloom will hit gold jewelry appetites in western markets, but jewelry buying in India and China - which together account for 55 percent of global jewelry demand - remains very strong.

If you add that up, because of the biggest and most dynamic move (in gold jewelry demand) eastwards, we think this year will show an overall positive trend, Lamb said.

Given the market volatility, a falling USD and increasing demand HCM expect to see Gold trading at $2500 in 2012, Shayne Heffernan said today.

But what was surprising back then was that gold shares barely ticked upwards even at the height of the gold frenzy. Looking at the main gold equity index of that time - the Johannesburg Stock Exchange's - that share price take-off happened several months later when companies began publishing their profit results and the (gold) penny dropped. Investors suddenly saw the effect of the high gold price on bottom lines.

Even though the gold price faded in the following three years, sinking below $US400/oz, the South African stocks maintained a lot of their gains. Read about Gold Companies Worth Buying, Click Here

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1 Gold demand excluding central banks.
2 Provisional.
3 Percentage change, 12 months ended June 2011 vs 12 months ended June 2010.
4 Exchange Traded Funds and similar products including: Gold Bullion Securities (London), Gold Bullion Securities (Australia), SPDR® Gold Shares (formerly streetTRACKS Gold Shares), NewGold Gold Debentures, iShares Comex Gold Trust, ZKB Gold ETF, GOLDIST, ETF Securities Physical Gold, ETF Securities (Tokyo), ETF Securities (NYSE), XETRA-GOLD, Julius Baer Physical Gold, Central Fund of Canada and Central Gold Trust, Swiss Gold, Claymore Gold Bullion ETF, Sprott Physical Gold Trust, ETF Securities Glitter, Mitsubishi Physical Gold ETF, Credit Suisse Xmtch, Dubai Gold Securities, ETF Securities Physical Asian Gold Shares, Claymore Gold Bullion ETF (Non-hedged), DB Physical Gold and iShares Physical Gold.

Source: Thomson Reuters GFMS , LBMA, WGC

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Gold's strong start to the year continued in the second quarter of 2011 where total global gold demand measured 919.8 tonnes(t), worth US$44.5bn, with a broad-based support across all sectors and geographies

  • In volume terms, demand was 17% below the remarkably strong levels of demand seen in Q2 2010, while in value terms demand grew by 5%. Healthy growth in jewellery demand and modest gains in demand from the technology sector were offset by a year-on-year decline in investment, principally from ETFs and similar products. Although they attracted sizable net inflows in Q2 2011, ETFs were unable to match the remarkable levels of investment recorded in Q2 2010, which was the second highest quarter of inflows on record.
  • The two markets that stood out - once again - as major contributors to overall growth were India and China. These two markets accounted for 52% of global end-user investment and 55% of global jewellery demand. Year-on-year growth in total consumer demand was 38% in India and 25% in China, compared with a global growth rate of 7%.

Gold Demand and Supply - Second quarter 2011

  • Gold demand totalled 919.8 tonnes in the second quarter of 2011, down 17% year-on-year. Improved levels of demand in the jewellery and technology sectors were more than offset by weaker investment demand, which was due primarily to a decline in ETF demand from the very strong levels seen in Q2 2010.
  • The gold price reached a series of new record highs during the second quarter and the average price for the period was up 26% year-on-year and up 9% on the prior quarter. After reaching a high of US$1,541 in early May, aided by soaring commodity prices and continued concerns over the outlook for western economies, gold corrected back to US$1,500/oz. However, gold was relatively protected from the sharp sell-off that affected many commodities and the dip provided jewellery consumers and investors alike with an opportune entry point.
  • Jewellery demand of 442.5 tonnes was 6% higher year-on-year as a number of key markets posted solid growth. India, China and Turkey (which together account for over 50% of global jewellery demand) generated combined growth of 16% although this was countered by weakness in other markets, most notably those in the west. The US$ value measure of global gold jewellery demand grew by 34% year-on-year to reach US$21.4bn.
  • A 37% year-on-year decline in investment demand was almost entirely driven by ETFs and similar products. Although ETFs witnessed solid net inflows of almost 52 tonnes during the quarter (almost entirely reversing the 62.1 tonnes of net outflow from Q1), the 82% fall in demand reflects the comparison with Q2 1010, when very sizeable levels of demand were generated by the escalation of the European debt crisis, resulting in the second highest quarter on record for ETFs.
  • Looking at physical demand for bars and coins, the second quarter witnessed growth of 9%. The geographical distribution of this demand was widespread, with a number of countries from all regions generating decent growth. Turkey and India were the two strongest markets, chalking up growth rates of 90% and 78% respectively. China also accounted for a significant portion of the growth in global demand.
  • Second quarter demand for gold used in the technology sector was up by a modest 2% at 117.9 tonnes. This growth was wholly generated by an increase in demand from the electronics segment, which generated a record demand value of US$4.1bn. Gold used in dentistry continued to decline.
  • The second quarter supply of gold was little changed year-on-year. Mine production, the only component of supply to make a positive contribution, rose by 7% to 708.8 tonnes. Producer de-hedging exerted a modest negative influence on supply, as did the official sector. Central banks generated another quarter of net purchases, more than quadrupling the levels of Q2 2010. Recycling activity, the final component of supply, was 3% down year-on-year, as consumers in many markets held off on selling their existing 'loose' holdings of gold in anticipation of higher prices.

Data on the supply and demand for gold are compiled by Thomson Reuters GFMS Ltd. The company provides a number of tables exclusively for the World Gold Council. The following table shows a summary of gold demand. Links to more detailed tables, and to notes and copyright information, are given below. Please note the restrictions on disseminating these data.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services. www.livetradingnews.com