Gold demand expected to be strong in 2010

Gold demand is expected to be strong during 2010, due to increasing interest for jewellery in India and China irrespective of high local prices, the World Gold Council said on Wednesday.

"Demand in India and China will continue to grow driven by jewellery demand, in spite of high local currency gold prices," WGC's Gold Demand Trends report said.

In Q1 2010, India was the strongest performing market as total consumer demand surged by 698 per cent to 193.5 tonnes.

In China, the demand proved resilient and increased 11 per cent in Q1 2010 to 105.2 tonnes.

On May 12, gold prices in India increased to Rs 56,032 an ounce, the highest level for the year, while at the same time in China prices reached an all-time high of RMB 8,480 an ounce, WGC said.

"The diversity of demand for gold, both by sector and geography ensures that the outlook for gold remains strong for the remainder of 2010.

Despite increasing gold prices, consumers in China and India will continue to drive market growth, particularly in jewellery," WGC CEO Aram Shishmanian said.

He further said the uncertain economic outlook and sovereign risk fears in the western markets will add impetus to growth in investment as investors seek to protect wealth.

"In the instance that we continue to see elevated levels of risk around the world, however, investment demand will remain strong in 2010," Shishmanian said.

While momentum in exchange traded funds tonnage paused during Q1 2010, gold ETF flows began to rise again in April and May as investors sought less volatile investments to protect their funds against economic turmoil.

On May 20 the GLD SPDR Gold Trust held a record 1,200 tonnes, with a value of $46.88 billion.

At present, the European gold investment demand is very strong, especially from German and Swiss investors.

This is because of concerns over public debt levels in the Eurozone and the potential inflationary impact of the European Central Bank's announcement of the $1 trillion rescue package to purchase Eurozone government bonds to address the Greek debt crisis, Shishmanian said.