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GOLD'S PHYSICAL DEMAND REMAINS STRONG- GFMS

Date: 12/04/2012

Gold's wild ride in 2011 may have seen waning speculative investment, but physical demand remained resilient, thanks in part to strong buying from China and some other emerging economies, according to data released Wednesday.

World investment in gold last year slipped 10.4% on-year to 1,605 metric tons, driven by heavy liquidation in the over-the-counter and gold futures markets amid heavy losses in other financial markets in the second half of the year, said the GFMS gold survey.

But even as speculators bowed out, demand for physical gold defied record-setting gold prices in 2011 and remained strong, especially among Chinese jewelry, coin and bar sectors, said consultancy GFMS.

This trend is expected to continue in 2012, according to GFMS, as physical demand for gold from emerging markets continues to grow, outshining appetite from other regions. Fresh evidence includes strong retail sales before and after the 2012 Chinese New Year amid inflation concerns and rising incomes.

In 2011, Chinese jewelry fabrication soared 14.6% to hit a new record high of 496 metric tons, building on a near-20% gain to 423 tons in 2010, according to the report.

The Chinese jump countered a global downward trend in jewelry fabrication, which fell 2.2% in 2011 to 1,973 tons, said GFMS.

Global demand for gold bars meanwhile surged 37% last year to a new record of 1,209 tons, according to GFMS. This was spurred by strong demand for physical gold as a store of value in China and India as well as safe haven interest from western investors, the report said.

Gold bar demand from China alone rose 40% in 2011 to 250 tons, from 179 tons in 2010, according to GFMS. Global gold coin fabrication rose 15.2% to 245.5 tons, spurred mainly by strong demand in Turkey and China, the report said.

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