Other big purchasers were China, with 454 tons, and India, at 200 tons. The World Gold Council reports that official comments from Russia show they intend to increase their gold reserves by approximately 100 tons during this year. That could be just the beginning. If Russia were to increase its percentage of foreign reserves held as gold from its current level of 9.2 percent to 20 percent, it would translate to almost 1070 tons at current dollar amounts.
The WGC notes, "If Russia decides to rebalance its books to its previous peak gold holding as a proportion of reserves of 60.1 percent in January 1995, we estimate it could account for total incremental demand of nearly 5,000 tons at today's gold price."
That's potentially a lot of demand that could materialize in the years to come, especially if Russia continues the way it has been going. The WGC reports that in the past three years, Russia's central bank has been purchasing an average 10.2 tons of gold per month.
But central bank purchases aren't enough to completely counteract declining demand in other sectors—mainly jewelery.
If central banks are apparently buying regardless of price, jewelry buyers are keenly focused on price—and let's face it, prices are high.
Demand for gold jewelry made up 42 percent of demand in the second quarter of 2012. India, as we have written about previously, shares the top spot with China as the top consumer of gold jewelry due to its role both as a store of wealth and its cultural role in gift-giving during various important festivals.
One such festival, Akshaya Tritiya, occurred near the beginning of the second quarter, and while demand was strong prior to the festival, if fell off afterward as prices rose.
And rise they did. As the Indian rupee depreciated against the U.S. dollar, local gold prices in India rocketed to over 30,000 rupees per 10 grams, discouraging price-sensitive investors from buying and prompting profit-taking. Additionally, high interest rates, domestic inflation and slow GDP growth combined to dampen demand for gold jewelry to the tune of 30 percent less than a year previously.
China's gold jewelry demand dropped 9 percent, compared with this time last year, to 93.8 tonnes. Chinese gold buyers tend to buy into rising gold prices, which they see as confirming their decision to invest. Between no clear upward price trend and a slowing GDP, that purchasing didn't materialize. But 2012, the year of the dragon, is an auspicious year for marriages, and demand for wedding jewelery was strong, tempering the jewelery demand drop.