Asian gold demand from this April to June will reach a quarterly record as bullion consumers in the region take possession of supply freed up by selling from exchange-traded funds (ETFs), the World Gold Council (WGC) said on Wednesday.
Gold prices fell to their lowest in more than two years at $1,321.35 an ounce in mid-April on signs of economic improvement in main markets and fears that central banks around the world could start to curtail their bullion-friendly policy measures.
The move scared investors in the West, triggering a sharp liquidation of speculative and ETF positions. But lower prices also prompted strong physical demand from price-sensitive countries such as India and China, which together account for more than 50 percent of consumer demand for bullion.
"Asian markets will see record quarterly totals of gold demand in the second quarter of 2013," WGC Managing Director Marcus Grubb said.
"Even if ETF outflows continue in the United States, it is quite likely that the gold previously held in ETFs will find a ready market among Indian, Chinese and Middle Eastern consumers who are taking a long-term view on the prospects for gold."
The council expects Indian gold imports to reach 350-400 tonnes in the second quarter, 200 percent higher than a year earlier and almost half of last year's total imports. This also compares to imports of 256 tonnes in the first quarter of 2013.
"We now definitely expect Indian demand to come in at the upper end of the 865 tonnes to 965 tonnes range that we had previously forecast for 2013 because of the effect of what happened in April," Grubb said.
Grubb said as net imports of gold into China reached around 160-170 tonnes in April alone and physical demand shows no sign of abating, total offtake this year could reach more than 880 tonnes. This compares to a previous forecast of 780-880 tonnes.
Chinese coin and bar demand hit a quarterly record of 109.5 tonnes in the first quarter, up 22 percent, and jewellery consumption rose to 185 tonnes. India's bar and coin investment rose 52 percent to 97 tonnes over the period, while jewellery demand reached 160 tonnes, the WGC said in a recent report.
The council will publish its second-quarter demand trends report in mid-August.
Gold investment in the West, however, plunged this year as a brighter view of the U.S. economy prompted investors to favour other assets such as stocks over bullion.
As of the end of April, ETF holdings had fallen by 13 percent, or 350 tonnes, with half the outflows recorded over the past month.
Holdings in the world's largest gold-backed ETF, SPDR Gold Trust, have lost 74 tonnes since the start of April, compared with outflows of around 120 tonnes in the first quarter.
These investment vehicles, which issue securities backed by physical metal, had proved a popular way to gain exposure to the gold price since the start of the financial crisis.
"We don't expect to see anything like the same exit of gold from the ETFs that we've seen in the first four months of the year ... the pace of redemptions is flattening out now," Grubb said.