Gold demand drops as prices rise

Gold demand dropped to a five-year low as record prices and a slowing US economy reduced purchases in every application for the metal except investment funds, the producer-funded World Gold Council said.

Global use of 701.3 metric tons in the first quarter, down 16 per cent from a year ago, was lowest since the start of 2003, the London-based council said today. The only growth was in China, Russia, Vietnam and Egypt. In India, the biggest user, consumption fell 50 per cent.

Purchases by large investors helped gold reached a record USD 1,032 an ounce on March 17. Prices have dropped 14 per cent since the high and demand in India for the Akshaya Thritiya Festival on May 7 fell 11 per cent from a year earlier, Council figures show.

"We still think demand will be down in the second quarter," Jill Leyland, Economic Adviser to the Council, said. "Even if the price stayed where it is now, it would take a while for consumers to get confident again."

Global jewellery purchases were 445.4 tons, down 21 per cent from a year earlier, according to London-based research company GFMS Ltd. Jewellery and coins and other retail investment demand declined 25 per cent in Turkey and Saudi Arabia. Consumption climbed 15 per cent in China and Egypt, 9 per cent in Russia and 71 per cent in Vietnam.

China's usage of 101.7 tons was 15 per cent higher than a year earlier and close to the 102.1-ton total in India. In the fourth quarter, China was the largest user.

Gold supplies increased 11 per cent to 901 tons as metal from recyclers climbed 30 per cent and central bank sales were 8 per cent higher.