India's appetite for gold continues unabated despite higher prices and in the second quarter of 2011, its demand for gold grew 38 per cent. According to the World Gold Council's quarterly report, Gold Demand Trends, India was the strongest growth market for gold in the second quarter of 2011 accounting for 32 per cent of the global demand for gold.

Total gold demand was up 38 per cent in tonnage terms to 248.3 tonnes from 180.4 tonnes while in value terms, Indian demand increased by 70 per cent to Rs.53,800 crore from Rs.31,730 crore.

Of this, Jewellery demand surged 17 per cent to 139.8 tonnes from 119.4 tonnes boosted by the festive season and the widespread expectation among Indian consumers about a further increase in the price of gold. In value terms, jewellery accounted for Rs.30,290 crore (Rs.21,000 crore) an increase of 44 per cent.

Investment demand comprising demand for bars and coins as well as ETFs (exchange traded funds) jumped 78 per cent to 108.5 tonnes from 61 tonnes, valued at Rs.23,510 crore against Rs.10,730 crore, an increase of 119 per cent as compared to the second quarter of 2010.

Ajay Mitra, Managing Director, Middle East and India, World Gold Council, said, “The second quarter of 2011 has been excellent for investments in gold around the world, especially in India. With inflation reaching record numbers and therebeing extreme volatility in the equity markets, investments in gold continues to prove popular as investors look to diversify their portfolios and protect their wealth”.

Globally, gold's strong start to the year was reinforced during the second quarter of 2011 where total global gold demand measured 919.8 tonnes, worth a near-record $44.5 billion, the standout markets being India and China, as these two markets accounted for 52 per cent of total bar and coin investment and 55 per cent of global jewellery demand.

According to the report, international gold demand in the second half of 2011 will remain strong owing to a number of key factors. Despite a higher gold price, Indian and Chinese demand grew 38 per cent and 25 per cent respectively during the second quarter of 2011. “This growth is likely to continue, due to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals. The impact of the European sovereign debt crisis, the downgrading of U.S. debt, inflationary pressures and the still-fragile outlook for economic growth in the West are all likely to drive high levels of investment demand for the foreseeable future,” the report said adding that central banks were likely to remain net purchasers of gold. Purchases of 69.4 tonnes during the second quarter of 2011 demonstrated that central banks are continuing to buy gold to diversify their reserves. Marcus Grubb, Managing Director, Investment, World Gold Council, said, “The strength of demand in India and China, coupled with an overall drop in recycling activity this quarter, demonstrates that consumers have adjusted to the current price environment and expect the upward price trend to continue. In addition, ongoing macro economic uncertainty, the continued sovereign debt crisis and widespread inflationary pressures, will result in gold demand remaining strong”.

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