Marcus Grubb is the managing director of investment for the World Gold Council, where he leads both investment research and product innovation, as well as marketing efforts surrounding gold's role as an asset class. Grubb has more than 20 years' experience in global banking, including expertise in stocks, swaps and derivatives.

After the release of the World Gold Council's quarterly Gold Demand Trends survey, Hard Assets Investor spoke with Grubb to get more details on the particulars of some of the report's more surprising conclusions.

Julian Murdoch (Hard Assets Investor): Traditionally, Indian consumers are among the savviest gold consumers. How is Indian demand holding up? And what does that demand pattern tell us about the long-term viability of gold at these price levels?

Marcus Grubb (Managing Director of Investments, World Gold Council): Well, the context for all this is that 2010 was a great year for gold; tonnage reached a 10-year high at 3,812.2 tonnes. And in dollar value, it was an all-time high for the gold market, at $150 billion.

A key element of that was the growth in demand in India in 2010. In total, India reached 745.7 tonnes of jewelry demand, which was up 13 percent [since 1998's peak]. Within that, you had a very strong fourth quarter, continuing the revival of Indian demand last year from the low reached in 2008. And consumer demand, which is a sum of jewelry and investment demand, was up 66 percent relative to 2009. All in all, a very strong picture for the Indian market.

Remember, that's in the face of a very strong gold price in gold markets in 2010, which, despite a small correction, has pretty much continued in 2011.

The other interesting thing, I think, is if you look at recycling. Obviously because India is the largest market, a considerable amount of total recycling comes in from India. But despite a very high gold price, recycling actually fell 1 percent in 2010. Keep in mind, it's 40 percent of supply. Mine production is constrained and growing only slowly, at around 2 percent last year, so the way you can satisfy demand is through recycled gold.

So that shows you the resiliency of the market, and I think it shows also that Indian gold buyers are positive about the future outlook for gold, which is why they're not selling into the strength.

Murdoch: What price level do you think Indian gold buyers will need before they flip that and start selling? What's it going to take to increase the recycling?

Grubb: I think that's much more difficult to determine, the implicit price floor within the Indian market, and generally within jewelry. There's always an element to which if the price goes higher, that may stimulate more recycling. If the price goes lower, you tend to see buyers come back into the market.

So I'd actually flip the logic of your question the other way around, because in the first part of this year we've seen exactly that happening. You saw a largely futures-led sell-off in gold in January, with some redemptions in the ETFs. Mainly long liquidations and rising net shorts on the COMEX drove the gold price down in January between 5.5 to 6 percent. But that was met by strong buying in India and China, and record premiums in the physical market for bars and for jewelry, generally in China, India and some of the other Asian countries.

So you've seen this East/West divide in the early part of 2011. A lot of that has been Indian buying on the dip in the price. You're not seeing a market that's tempted to recycle. You're seeing a market tempted to buy more, because Western investors have pulled back in January, and the prices come down a bit.

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