Price fluctuations dent demand, says WGC

According to a spokesperson for the World Gold Council, the global uncertainty in the economic and political arenas should continue to foster strong investment in gold during the remainder of 2006, but more stable prices will be necessary if there is to be a recovery in demand for gold jewellery.

In an interview with Reuters, George Milling-Stanley said that price volatility hurt jewellery purchases, rather than the surge in the gold price to 26-year highs during the quarter.

"A rising price will increase investment demand and it doesn't always act as a major deterrent to jewellery demand," Mr Milling-Stanley said. "The uncertainty generated by the volatility is what hurts jewellery demand."

Year-on-year demand for gold had dropped by around 16 per cent for the second quarter of 2006.

However, Mr Milling-Stanley was quick to point to the fact that despite this drop in demand in the total weight of the precious metal, the monetary value of gold demand had actually risen to an all-time quarterly record.

The next few months will be an important time for the gold jewellery industry as the Indian festival season approaches. Traditionally, gold demand in India, the world's largest consumer of gold, is strongest during the second half of the year.