The Gold Economy

Last week, the World Gold Council launched its quarterly Gold DemandTrends report, and it had lots of lovely statistics to ponder as it surveyed what the gold market looked like for the second quarter of 2010.

ETF Buyers Outweigh Jewelry Buyers

So first off: Who wants gold? Everyone, it seems — particularly investors.

Total gold demand was up 36 percent from this time last year, with gains seen in electronics, physical investment and ETFs. Demand from the jewelry and dentistry sector declined, however, 5 percent and 6 percent, respectively:

But

Ever since I started my investment career as a mining analyst in 1984, I have taken a keen interest in gold stocks. In particular, I always keep a close eye on the relative strength of the miners versus the metal as stocks often lead bullion.

The chart below (click to enlarge) has been constructed by dividing the MarketVectors Gold Miners ETF (GDX) by the streetTRACKS Gold Trust (GLD). A rising trendline indicates outperformance by gold stocks against bullion, whereas a declining line shows the metal having the upper hand

Gold: Markets nervously await data this week including the important monthly jobs number which will likely again underline the risks of a double dip recession. While Asian shares advanced, European shares (London closed for a public holiday) have been more tentative this morning and the US futures are marginally positive. Currencies markets have not seen much movement but yen is stronger again today despite concerns that the government action will not be able to control currency price movements.

Gold is currently trading at $1,235.20/oz, €971.22/oz, £793.93/oz.

click to enlarge images

Gold – 10 Day (Tick)

The fact that gold demand is soaring isn’t such a surprise, but the fact that gold ETFs are responsible for a large portion of that demand may be.

The World Gold Council recently came out with its gold demand picture, and the numbers are pretty impressive:

• Total gold demand for the second quarter was up 36%, or up 77% in U.S. dollar denominations.
• ETFs were the largest contributor to the spike in gold sales. Demand rose a staggering 414% in the period, the second-highest growth in quarterly demand on record. The council said that investors favor ETFs when it