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The World Gold Council has recently published its first quarter report on gold demand trends. Gold (GLD) is trading under $1450 once again. The report gives us a chance to see what's happening in the real world.

Here's the one single most important takeaway from the report: the overall gold demand was down 13% in the first quarter. The sole reason for this was the outflow from ETFs. Without this outflow, the demand growth would have been positive. Now, it's time to get into more detail.

Gold demand comes from jewelry and technology needs, as well as from investment and central bank purchases. Jewelry demand has grown 12% year-over-year. Countries responsible for the growth were China, India and the U.S. While China's most recent GDP numbers have disappointed investors, it's important to remember that the country is growing at high rates. More and more people in the world's most populated country can afford jewelry, so there is little surprise that China's demand for jewelry rose 20% year-over-year. India, the country which is obsessed with gold, showed a 27% year-over-year increase in demand. U.S. first quarter jewelry demand had its first year-over-year increase in more than seven years. Among the developed economies, U.S. is the sole leader. Europe's struggling economy has led to a 26% drop in jewelry demand. As of today, Europe is the pain point for almost every industry.

Technology demand has declined by 4%. This trend is led by diminishing demand in the dental industry. New materials substitute gold. This trend is likely to continue. Consumers in developed countries prefer the natural look of their teeth.

Investment demand is split into two camps - the ETF camp and the retail camp. While ETFs experienced outflows, bars and coins prospered. U.S. Mint had even run out of its smallest coins. The sales of gold coins have jumped to highest in three years. Retail investors were attracted by lower gold prices. As prices continue to stay low, this trend is likely to continue. What is more important - the ETF outflow or the retail inflow? I think that in the short term the ETF outflow is more important. We see its results - gold is down 17% year-to-date. One should not underestimate the importance of retail buying in the long term. The amount of gold in the world is fixed, so the more gold is bought, the less is left. It would be interesting to see the second quarter demand results. They would show if the surge in retail demand is just a buying rage or a long-term trend.

Central bank net purchases fell 5% year-over-year. What is more important, these net purchases are 272% higher than the 5-year average. Typically, central banks are the most informed players on the market and know what they are doing. This is certainly long-term bullish for gold.

Supply was 2% down in the first quarter of 2013 in comparison with the fourth quarter of 2012. It was flat in comparison with the first quarter of 2012. One should not count on the rise of supply in the near term. The prices are going down, and gold miners (GDX), whose stocks are getting hammered, are struggling to cut their costs. When some miners started to report all-in cash costs, it became obvious that these costs are high. For example, Barrick Gold (ABX) projected that its all-in costs would be in the range of $950 to $1050 per ounce. Goldcorp (GG) expects its all-in costs to range between $1000 and $1100. Some people argue that those costs are significantly higher. The more the gold price falls, the more gold mines become economically inefficient. The price of gold could become less than the cost of mining gold for the short term, but it would not stay low forever. Mines would have to be closed, the production would be cut and that would force prices to go up.

What does this data mean for the investor? It is clear that there is short-term pressure on gold. I expect more volatility to come. For a lot of players, gold would be the instrument for trading, not for investing. However, I believe that long-term fundamentals for gold are bullish, so investors who would like to build their long positions should start accumulating them now.

Source: Digging Into The First Quarter Gold Demand Report