REVIVED gold demand from exchange traded funds as the US dollar weakens bodes for a strong performance from the precious metal over the next few months.

Karvy Comtrade observed that SPDR Gold Trust – the largest gold-backed ETF in the world – lifted its gold holdings from 1205.41 tons (empirical) to 1225.4t on Wednesday alone, “indicating growing investment demand”.

Macquarie Private Wealth saw wider implications for base and precious metals due to lacking ETF involvement over past months.

“Physical ETFs have for the most part declined in size of physical holdings of metals in the first half of the year,” MPW said in a commodities report.

“But this has seriously undermined prices despite the substantial impact on physical market balances.

“This would suggest pricing could rise sharply higher if investment interest via ETFs returns in the second half of 2011.”

According to data citing its own and six other sources, ETFs accounted for 2177 tonnes of gold demand at the end of 2010 compared to 2146t at the end of last month.

This data estimated annual global gold demand of 4018t for the end of 2011 and ETFs would hold 53% of this demand by that stage, up from the estimated 50% of demand at the end of 2010.

The percentage of ETF demand for gold production has steadily increased with the price over past years, with ETFs representing 31% of demand in 2008.

Gold surged this week to hit a record high $US1584.30 an ounce on Wednesday night after Moody’s announced a potential downgrade in US government debt.

The US Congress is yet to reach a compromise on lifting the $14.2 trillion debt ceiling before the August 2 deadline, but any further quantitative easing measures will only boost the fundamentals of precious metals.

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