Commodities change little in European session as economic data released so far has not been inspiring. Trading remains thin as investors await US’ 2Q10 GDP and Fed Chairman Ben Bernanke’s speech at Jackson Hole. The market generally anticipates the Chairman to hint further easing measures to avoid a double-dip recession. WTI crude oil hovers around 73 after a 2-day rebound. Price outlook is soft as demand is too weak to absorb the ample inventory. Gold trades narrowly below 1240 but the near-term uptrend remains intact.

A report by the World Gold Council shows that gold demand rose to 04005 metric tons in 2Q10. This was the highest level since 4Q08 and was driven by robust growth in investment demand. Retail investment and investment in gold ETFs jumped +28.9% and +413.8% respectively in 2Q10, compared with the same period last year.

Sovereign crisis in the Eurozone heightened in May 2010 and increased demand for safe-haven assets. According to WGC, European retail investment for gold rose +115% q/q to 84.8 metric tons with Germany and Switzerland contributing 83% of the area’s retail market.

While jewelry demand has traditionally been the biggest contributor to global demand, high gold price usually dampens physical buying. During the past quarter, jewelry made up 38.9% of total gold consumption, compared with 40.4% in retail and ETF investments. Global jewelry demand slipped -5% y/y to 408.7 metric ton during the second quarter. Geographically, Taiwan, Indonesia and South Korea recorded the biggest annual declines, by -39.5%, -38.6% and -26%, in jewelry consumption. India remained the largest jewelry market. It’s buying during the quarter dipped -2% from the same period last year. We expect Indian demand will be boosted by the festive season in the third quarter. Consumption in China gained +4% to 75.4 metric tons while that in Russia soared +17% to 16.3 metric tons.

We know pretty well that seasonality affects gold purchases. The chart below shows that 3Q is the best quarter for gold with September is the single best month. In fact, data over the past decade shows that over almost 70% of the yellow metal’s annual gains is captured in the last 4 months of the year.