Rising Gold Demand Is Not Just Speculators (GLD, GDX, GDXJ, TIF)

The World Gold Council has shown that demand from Asia remains high for gold.  High prices be damned!  This was reinforced in the second quarter where total global gold demand measured 919.8 tonnes.  This was almost a record with demand being a whopping $44.5 billion (in dollar equivalents). The standout markets were India and China, accounting for 52% of the total bar and coin investment and accounting for 55% of global jewellery demand.

The World Gold Council is calling for demand to remain high in the second half of 2011 as well.  Indian and Chinese demand grew 38% and 25% respectively during Q2 2011 compared to the same period of 2010. More importantly, the growth “is likely to continue, due to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals.”  Also acting as drivers are the European sovereign debt crisis, the downgrading of US debt, inflationary pressures, and the still-fragile outlook for economic growth in the West.  Those are drivers of ‘investment demand.’

Here is the biggie.  Individuals can buy and jewelry and industry can buy gold, but the central banks of the world have the ability to influence the gold markets more than any entities in general.  The World Gold Council noted, “Central banks are likely to remain net purchasers of gold. Purchases of 69.4 tonnes during Q2 2011 demonstrated that central banks are continuing to turn to gold to diversify their reserves.”

The ETF demand continues.  SPDR Gold Shares (NYSE: GLD) just hit a new all-time high yet again of $177.90 today.  The SPDR site even went on to note as of yesterday that its Tonnes are 1,271.98; Ounces held are 40,895,586.88; and the value is a whopping $73,187,865,266.65… Over $73 billion!

When you hear the words “gold mine nationalization” out of Venezuela and the fears of the same risks for the white-owned mines in South Africa, you know the miners cannot be winning in the day. Market Vectors Gold Miners ETF (NYSE: GDX) is down 0.5% at $60.45 and the 52-week range is $49.57 to $64.62.  The more volatile and speculative Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) is down 2% at $35.18 and its 52-week range is $28.06 to $44.86.

When you see the demand figures rising for jewelry, you have to almost immediately consider Tiffany & Co. (NYSE: TIF).  Sure, shares are down 8% at $59.10 today and the 52-week high is $84.49, but it was one of the few bright spots this last earnings season.  That raised guidance might need to be tempered, but if the jewelry market is growing you can count on Tiffany figuring out to win there.

Royal Gold, Inc. (NASDAQ: RGLD) is a gold royalty investor and its shares are up 0.5% at $69.00 versus a 52-week range of $45.37 to $70.86.

Here were some of the second quarter statistics in gold, but keep in mind that these have a look back, and these all support the comments above on individual stock names.

• Global gold demand in the second quarter of 2011 totaled 919.8t, down 17% from the remarkably strong levels of 1,107 tonnes in the second quarter of 2010.
• Gold demand in value terms grew by 5% year-on-year reaching $44.5 billion, the second highest quarterly value on record and only a hair behind the $44.7 billion in the fourth quarter of 2010.
• A surprise was that Q2 2011 global investment demand was 359.4 tonnes, 37% down year-on-year from 574.2 tonnes in the second quarter in 2010.  The difference is that a year earlier was the second highest quarter ever.
• ETFs witnessed solid net inflows of almost 51.7 tonnes, above the average of 41.4 tonnes.
• Demand for gold bars and coins was 307.7 tonnes, up 9% from a year earlier.
• Jewellery demand was up 6% from a year earlier at 442.5 tonnes. In value terms it was a 34% gain to $21.4 billion with India, China and Turkey representing 59% of global jewellery demand.
• Technology demand was up by 2% at 117.9 tonnes, at a record gain to $5.7 billion (up 28%).
• Gold supply was 1,058.7 tonnes, a 4% decline due to an increase in net purchasing by central banks.
• Mine production rose by 7% to 708.8 tonnes.
• Central banks buying “more than quadrupled” from Q2-2010.
• Recycling activity was down 3% at 429.3 tonnes.

The golden drum beat goes on!  Oh, and by the way, when you see another margin requirement hike each time gold rises “too much” do not be surprised.

Also, we would note one issue in any forecast from the World Gold Council: They have a vested interest in being bullish on gold.

JON C. OGG