JOHANNESBURG (miningweekly.com) – In a turbulent second quarter for the gold market, record demand for jewellery and gold coins and bars was weighed down by the significant exit of gold exchange-traded fund (ETF) investors.

A “wave” of outflows of ETFs – registering at negative 402.2 t and a negative value of $18.4-billion – dragged overall demand down 12% year-on-year to 856.3 t.

This was the lowest level in four years - with the previous record low recorded in the second quarter of 2009, at 834 t.

The World Gold Council’s latest Gold Demand Trends quarterly report showed that the average quarterly price experienced a double-digit decline of more than $400/oz – compared with both the first quarter of this year and the second quarter of 2012.

The quarter saw several hedge funds and speculative investors exit their positions in a kneejerk reaction to the predictions of a recovery in the US economy.

“The prospect of the US government tapering quantitative easing by the end of 2013 had a disproportionate downward impact on the gold price, as some investors in ETFs saw their key rationale for seeking a safe haven in gold fade,” the report explained.

However, record demand for gold bars and coins at 507.6 t, or $23.1-billion in value – a 56% rise on the previous corresponding quarter – had offset the lower ETF demand, the report revealed.

During the first half of the year, bar and coin demand reached 913.2 t, around three-quarters of the 2012 total.

Further, a significant upward trend in jewellery demand, reaching multiyear highs at 575.5 t, and valued at $26.2-billion, on the back of greater demand from India and China, had also mitigated the lower overall gold demand.

The second quarter saw a continuation of the strong recovery in consumer demand for jewellery, with the two countries leading the field with nearly 60% of global jewellery demand between them.

“India and China generated the largest volume increase – almost 120 t of the 155 t increase in demand was from the two Asian giants,” the report showed.

However, with import regulation changes, India’s demand would “notably dampen” over the next few months, “more than would normally be expected during the usual third-quarter slowdown”.

“The continued expansion of the domestic jewellery retail network and growth in production capacity in China has positive longer-term implications for jewellery demand, but the market faces possible shorter-term headwinds from a more material economic slowdown,” the report pointed out.