Gold demand may decline in upcoming months

By Zhang Fengming  |   2008-6-3  |     ONLINE EDITION

DEMAND for gold may slow in the second and third quarter as prices fluctuate and less enthusiasm after the Sichuan earthquake, the World Gold Council told Shanghai Daily today.

"The unstable gold prices may lead to a wait-and-see attitude among buyers in the second quarter,'' Wang Lixin, head of the gold advocate in China told Shanghai Daily yesterday. "Chinese buyers are not afraid of price increases but fluctuations will confuse them on when it's the right time to buy."

"Concern about economy growth slowing may also add pressure on gold sales," he said.

The 8.0-magnitude earthquake on May 12 also cooled interest in consumption as people were now focused on reconstruction of quake-hit areas, he added.

"We expect gold demand in China to be stable this year as the macro-economy is still prospering," Wang said. "But it is still early to say demand will grow stably."

China's gold demand rose 13 percent in the first quarter amid a strong appetite for both investment and jewelry on China's mainland, the World Gold Council said.

DEMAND for gold jewelry on the mainland rose 9 percent to 86.6 tons while in Hong Kong it dropped 5 percent to 3.6 tons. It tumbled 30 percent to 2.8 tons in Taiwan. Investment-grade gold demand also surged 63 percent on the mainland to 15.1 tons.

Rising prices attracted more investment in the first quarter.

Slumping stock markets also pushed investors to seek alternative investments. The benchmark Shanghai Composite Index shed 34 percent in the first quarter.

High inflation also drove more investors to seek a hedge in gold, a traditional safe heaven. The consumer price index, the main gauge of inflation, rose 8 percent in the first quarter.

Gold products featuring Olympic logos also created increased interest in the metal during the first quarter.

Total gold demand on the mainland rose 15 percent to 101.7 tons in the first quarter. Total gold demand in China increased to 109.7 tons.