Robust market fundamentals, including evidence of both stronger jewelry demand in India, growth in Chinese jewelry demand and sustained investor inflows, continued to support gold price performance during the first three months of 2010, according to the World Gold Council's (WGC) latest Gold Investment Digest. The report published last Thursday showed: • The gold price rose modehstly during Q1 2010, ending the quarter at $1,115.50/oz, on the London PM fix, compared with US$1,087.50/oz at the end of Q4 2009, as evidence of seasonally strong jewelry demand in India and China combined with continued global investment flows, provided a robust fundamental support to the gold price. • On a risk-adjusted basis, gold outperformed compared with the broader commodity complex and international equities, but slightly underperformed against US and emerging market equities in the first quarter of 2010. • Gold remained, on average, the least volatile of the commodities monitored by WGC1, with the exception of the S&P GS Livestock Index, with annualized average volatility falling to 17.6 percent from 20.0 percent in the previous quarter. By the end of Q1 2010, price volatility fell further to 14.8 percent on a 22-day rolling basis, below its historical average. • Investors bought 5.6 net tons of gold via exchange traded funds in Q1 2010, bringing the total amount of gold in the major physically-backed ETFs that WGC monitors to a new record of 1,768 tons, worth US$63.4 billion, at the quarter-end gold price. Anecdotal evidence suggests that the over-the-counter market experienced net inflows while generally maintaining existing long positions. • During the first quarter, net long positions on gold futures contracts, a proxy for the more speculative end of investment demand, fell from the highs experienced in Q4 2009, but remaining high by historical standards suggesting that participants in the futures market still see value in gold. Juan Carlos Artigas, Investment Research Manager, World Gold Council commented: “Given the proven role gold plays as a hedge against weakness in the dollar and the fact that it typically exhibits a negative correlation with equities, it is often assumed that when equities or the US dollar rise, the gold price suffers. This quarter's gold price performance was achieved despite the US dollar rallying against weaker European currencies and despite an upturn in US and emerging market equities. “What becomes clear is that, gold's continuing upward price trend is anchored in solid fundamentals.” A strong recovery in Indian jewelry market from the low levels of demand experienced in early 2009, was further reinforced by rupee appreciation against the dollar.
