Gold Quarterly Demand Falls 19% on Jewelry Sales, Industry Says

By Pham-Duy Nguyen

Aug. 13 (Bloomberg) -- Gold demand fell 19 percent in the second quarter as near-record prices and wide fluctuations in costs discouraged purchases from jewelers, the world's biggest users, the producer-funded World Gold Council said.

Global demand fell to 735.6 metric tons from 905.7 tons a year earlier, the London-based industry group said today in a statement. Purchases for jewelry fell 24 percent and sales to India, the world's largest gold consumer and jewelry buyer, plunged 45 percent, the group said.

Gold traded in London averaged $897.40 an ounce during the quarter, up 34 percent from a year earlier and down from the first quarter, when the precious metal reached a record $1,032.70 on March 17. The historical volatility of gold, or the rate at which a price moves up and down, was 25 percent during the quarter, up from 14 percent a year earlier.

``Near-record high prices coupled with price volatility deterred consumers from buying jewelry in more price-sensitive areas,'' George Milling-Stanley, a director of Official Sector, said in an interview. ``India was particularly hard hit.''

Gold touched a record in March after the Federal Reserve slashed the benchmark U.S. interest rate, driving the dollar to a record low against the euro. The metal is 21 percent off its all-time high as the dollar rebounded and commodities have retreated, reducing the appeal of gold as a hedge against inflation.

Prices Fall

Gold for immediate delivery fell 1.4 percent to $812.32 an ounce yesterday in London, down 2.6 percent since the end of last year. Gold futures for December delivery fell $13.70, or 1.7 percent, to $814.60 yesterday on the Comex division of the New York Mercantile Exchange, the eighth straight decline and the longest slide since 2001. Gold futures reached a record $1,017.50 on March 17.

Total demand from India fell to 161.4 tons from 296.1 tons, the Gold Council said. The country accounted for 27 percent of gold demand in 2007. Demand in the Middle East dropped 12 percent to 86.1 tons.

``When the price is high and stable, they all seem to be enthusiastic buyers,'' Milling-Stanley said. ``When the price has been volatile and falling, people will wait to buy.''

Demand for gold grew 41 percent in Vietnam to 30 tons as double-digit inflation sparked purchases from investors seeking a hedge against accelerating prices, the Gold Council said. HSBC Holdings Plc said last month that Vietnam's annual inflation rate will exceed 30 percent in August.

Gold ETFs, Central Banks

Investment in exchange-traded funds rose by 4 metric tons compared with a redemption of 2.6 metric tons a year earlier, the industry group said. It was still a 94 percent decline from the first quarter, when so-called ETFs attracted 72.7 tons of investment.

Gold supply rose 1 percent from 797 tons to 802 tons, the council said. Central bank sales fell 43 percent to 88 tons and gold producers bought back 131 tons to eliminate hedge positions.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.