MUMBAI: Global demand for gold fell 5.0 percent in the first quarter of 2012 but demand in China hit record highs and outstripped that of megabuyer India, the World Gold Council said yesterday.
Demand worldwide fell to 1,097.6 tons in the quarter ended March, worth an estimated $59.7 billion, with gold prices on average 16 percent higher than those seen in the same period last year, the council said in its latest report.
Reduced demand for gold from global central banks, jewelry and technology sectors outweighed a rise in investment demand for gold.
Yet Chinese consumption of the yellow metal hit new highs on investor concerns over inflation, rising 10 percent to a record 255.2 tons and outstripping rival India which saw a sharp decline, the WGC said.
Demand in India was down 29 percent from a year earlier to 207.6 tons, hit by a jewelers strike, a weak rupee and government policy aimed at reducing gold imports and the country's wide current account deficit.
"China and India have seen continuing economic growth and whilst China's economy is expected to slow, it will nonetheless surpass the rates of growth in the West," said Marcus Grubb, managing director (investment) at the WGC.
In 2011, India saw a 7.0 percent decline in demand year-on-year to 933.4 tons, while demand from China jumped 20.0 percent to 769.8 tons.
Grubb said Chinese demand over 2012 is expected to outstrip that of India, traditionally the world's largest consumer and importer of gold.
The two countries, which have both been battling high inflation, account for about half of the world's gold demand combined.
Global demand surpassed $200 billion for the first time in 2011 as demand for the metal as a safe-haven investment surged, the WGC said in its annual report in February.
Meanwhile, gold rose more than 1 percent yesterday, bouncing off a 4-1/2 month low, as weaker prices attracted new physical buyers, but gains were likely to be limited as the euro was undermined by fears of a deepening debt crisis in Greece.
Spot gold rose 1 percent to $1,553.80 an ounce by 1307 GMT, from $1,538.30 late in New York on Wednesday, when it plunged to $1,527 — its weakest since Dec. 29.
The precious metal rose to a high of $1,557.56 earlier, helped by the approaching expiry of gold options in the COMEX futures market.
US gold futures hit a high of $1,557.90 an ounce and were at $1,554.30, up 1.1 percent. The contract had plunged to a multi-month low of $1,526.70 on Wednesday.
Gold, traditionally a safe-haven asset, has been moving in tandem with riskier assets such as equities, industrial metals and oil this year, as investors turned to the safety of the dollar.
However, this may soon change, according to some.
"Since yesterday we have seen more interest come through from physical buyers...because prices have come down substantially," said Afshin Nabavi, head of trading at MKS Finance.
"But there is more upside than downside risk for gold at the moment as the political situation is very jittery with tension in Iran and economic problems especially in the euro zone. People will want to buy physical gold again. Those who went out since December are now waiting for prices to stabilize before getting in again."
Since last year, many investors have unwound their bullish bets in gold, cashing in the metal to cover for losses in other markets, after the turmoil in Europe raised the prospect of a recession that threatens to hurt the global economy.
A June options expiry in the COMEX futures market also helped support the metal as many investors consider the current gold price a good entry point, analysts said.
"This is a value buy; in volatile times people go back to the charts," said Nick Moore, global commodity analyst at RBS.
"We have had a sharp sell off which has uncovered the value of the metal and people are seeing $1,530 as an attractive entry point for gold."
Gold was little changed after government data showed that new US claims for unemployment benefits were unchanged last week. That will do little to ease concerns about a recent slowdown in jobs growth.
"Evidently, some buying on the dips emerged above December lows also with fresh physical inflows with prices starting to look attractive," said VTB Capital in a research note.
"Some physical interest is welcome, but much more serious buying out of Asia needs to emerge for us to see a sustained recovery. For now, the investor community remains spooked and is unlikely to return to the market with full vigor unless we have a monumental credit event in Europe or a pronounced dollar retreat."
The euro slid to a four-month low against the dollar and was expected to remain under pressure as concerns grow about problems facing some periphery euro zone banks and the prospect of contagion if Greece exits the euro.
A weaker euro against the dollar makes dollar-priced commodities such as precious metals costlier for euro holders.
IMF chief Christine Lagarde warned of "extremely expensive" consequences if Greece were to leave the euro zone, a once taboo possibility that European leaders have begun to discuss openly given the nation's political chaos.
Investors were also focusing on Spain, whose borrowing costs shot up at a bond auction after economic data confirmed the country is back in recession and reports that nationalized Bankia had suffered an outflow of deposits hammered its share price.
In other precious metals, silver was up 2.21 percent on the day at $27.74 an ounce, having fallen for eight days in a row, its longest losing streak since a 10-day decline that began in late August 2008, just before the global financial crisis claimed some of Wall Street's biggest banks.
Platinum was up 1.4 percent at $1,442.70 an ounce, while palladium rose 1.88 percent to $598 an ounce.
