Should Gold Bugs Be Worried About Global Demand?

Since hitting all-time nominal highs above $1,900 an ounce, the price of gold has suffered an ugly correction. The precious metal recently logged its second consecutive quarterly loss, and remains stuck in a downtrend. Some investors have become discouraged, but demand is not as bearish as one might think.

In the first quarter of 2013, total gold demand reached 963 tonnes, representing a 13 percent drop from a year earlier, according to the latest report from the World Gold Council. Heavy selling pressure and outflows from exchange-traded funds accounted for the majority of this decline. For example, shares of the SPDR Gold Trust, the largest gold fund, declined 4.7 percent in the first quarter. Total outflows in ETFs and similar products amounted to 176.9 tonnes.

However, strong demand in gold jewelry, bars, and coin helped to offset the outflows in ETFs. Total jewelry demand jumped 12 percent year-over-year to 551 tonnes in the first quarter, easily topping the five-year average of 500.5 tonnes. Meanwhile, total bar and coin demand increased 10 percent to 377.7 tonnes, compared to a five-year average of 281.3 tonnes.