Jewelry Demand to Pick-Up, Despite High Prices: World Gold Council
26 August 2010, 3:41 p.m.
By Daniela Cambone and Debbie Carlson
Of Kitco News
http://www.kitco.com/
Despite gold's high price, jewelry demand will pick-up in India since investors are realizing the high prices might be here to stay, said Jason Toussaint, managing director, U.S., of the World Gold Council on Wednesday.
"If we are at $1,250 an ounce and it went up rapidly to that number, you would see a dramatic impact on jewelry demand. Although we have had a decade of increasing gold prices, there seems to be a steadying out or a little bit less positive volatility to the gold price at this point-in-time, which gives people the understanding that maybe these prices are here to stay," he said.
Wednesday, the WGC said in its second quarter gold trend report that jewelry consumption fell 5% from year-early levels to 408.7 metric tons in the second quarter of 2010. Jewelry demand suffered because of rising prices as investors sought the safe-haven of the yellow metal because of global economic concerns and jitters about the European debt situation.
India, the largest jewelry consumer, saw demand down 2% at 123 tons. The WGC admits this tonnage amount historically is relatively low. However, the council said if it is measured in local currency terms the demand value is much higher for India and China.
"If you look and measure that in rupee terms, expenditure on gold jewelry was up 20%," said Toussaint.
With the Indian marriage season coming up as well as important festivals, the WGC anticipates gold demand will remain robust throughout 2010.
Jon Nadler, senior metals analyst for Kitco Metals said last year's high gold prices did not help jewelry sales.
"In the wake of similarly high prices in the first quarter of 2009, India along with Turkey, another pivotal gold consumer, both turned into net exporters of gold due to scrap re-sales," Nadler said.
Investment Demand
Gold's role as an alternative currency and store of value has driven prices to nominal all-time highs this year. The precious metal hit a record 1,265.30 dollars per ounce on June 21, propelled partly by concerns over the poor economic climate.
"Is it all about investment demand right now," Toussaint said.
The WGC said gold demand grew 36% year-over-year during the second quarter on the back of strong investment demand versus the second quarter of 2009.
Investment demand indeed supported prices, Nadler said, but added "perhaps too much so."
"The market has become very dependent on investment demand, it doesn't take anything more than a change in sentiment or preference for riskier assets to undo such investment demand very quickly," Nadler said.
At the end of the second quarter - before gold prices slumped in July - the WGC said ETFs held a record 2,041.8 tons of gold, with 90% of that coming in May and June when concerns about Europe's economic stability were at their zenith.
There is a presumption however, that the investment sector is led by ETFs, Toussaint said. "This is not exactly accurate," he said.
"We can't forget that the investment sector is made up by ETFs but also by physical coins and bars, which make up a significant portion," he said.
Nadler questioned what it is about when ETFs saw the second highest quarterly accumulations in ETFs.
"So tell me it is not all about ETFs when official coins are down 13%, and other ‘identified retail investments' are down 50%," Nadler said.
Central Banks
Purchases by central banks slightly exceeded sales, resulting in net purchases of 7.7 tons, the WGC said in its quarterly report.
"It was essentially flat," Toussaint said. "We did see an accumulation disclosed by the central bank in Russia that it accumulated 35 tons; whether this translates to further purchase, it is difficult to predict," he said.
"There is an absolute realization in eastern central banks (China, Korea, Taiwan) that are traditionally large holders of US dollars, expressing concern on what the future of the dollar is and realizing that gold has a role in their reserve portfolios," he said.
The good news from these figures is that is that the central banks in the PIIG (Portugal, Italy, Ireland and Greece) countries didn't dishoard much, Nadler said. "Even though the euro-crisis would have given sufficient reason for any one of the PIIGS countries to resort to an emergency sale," said Nadler.
Mine Supply
Mine supply hasn't tracked the rise in gold prices since mine supply peaked in the fourth quarter of 2005, but scrap sales rose 35% year-over-year to 496 metric tons.
The bulk of this came from non-Western markets, notably the Middle East and East Asia. Scrap sales are still under the record set in the first quarter of 2009 of 606 tons. However, the organization believes it will take a considerable rise in price to get more scrap gold to come to market. The total gold supply in the second quarter was 1,131.4, up 17% from a year ago at this time. Mine production rose 5%.
Source: http://www.kitco.com/reports/KitcoNews20100826DC.html
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