Gold Jewellery Spending Hits Record High, Minus Demand
By Jon A. Nones
17 Aug 2006 at 05:30 PM EDT
Go to resourceinvestor.com to read this with the charts and graphs
St. LOUIS (ResourceInvestor.com) -- The gold price volatility did not curb consumer spending for jewellery. In its latest report on the global gold market, the World Gold Council (WGC) reported that consumers spent more on gold jewellery in the second quarter than ever before. But overall demand was down 16% from one year ago.
“Sentiment towards gold has remained strong, and today’s figures indicate continued investor interest and a record high in dollar terms for gold jewellery purchasing,” said James Burton, Chief Executive of the World Gold Council, in the report.
According to statistics compiled by GFMS Ltd. for the WGC, gold jewellery demand rose 12% in value terms to $11.4 billion for the quarter due to positive consumer sentiment combined with rising disposable incomes in key markets. Total demand rose 23% in dollar terms reaching a record of $16.2 billion.
However, many consumers, manufacturers and retailers showed a reluctance to commit to purchasing gold while prices remained volatile, which resulted in a 24% fall year on year in tonnage terms to 562 tonnes. The average price of gold for the quarter was up by 47% year on year, accounting for the record dollar amount of spending.
“Price volatility has, as expected, had a detrimental effect on demand in tonnage terms. However it is reassuring to see people are spending more on gold,” added Burton.
India was most affected by the volatility, declining 43% when compared with the second quarter of 2005. Saudi Arabia was next, reporting a 32% decline, followed closely by Egypt with a 30% drop. China, however, was less affected than others, falling just 2%, but Hong Kong by itself was down 27%. The United Arab Emirates fell 19%, Taiwan 18%, Italy 12% and the U.S. 10%.
However, more gold jewellery is historically sold in the U.S. during the fourth quarter than at any other time of the year.
According to the chart to the left, only 34% of total gold jewellery sales for 2005 occurred in the first two quarters.
The graph illustrates 45% was sold in the fourth quarter of last year, which includes Christmas, according for nearly one half of all sales in the U.S. for the year.
The drop in gold jewellery demand in volume terms affected overall gold demand, which was down 16% to 802 tonnes on the same period in 2005, according to the report. However, investor demand remands robust.
Total identifiable investment demand for gold in the second quarter rose 19% to 130 tonnes and 75% in value terms year on year, taking the total value of investment for 2006 to $6.1 billion, according to the WGC.
Gold Exchange Traded Funds (ETFs) pulled in a total of $789 million during the second quarter. At the end of June, StreetTRACKS Gold Shares [NYSE:GLD] held 371.9 tonnes of gold worth $7.3 billion at market price at June 30. Barclay’s iShares Gold Trust [AMEX:IAU] currently holds roughly 43.13 tonnes at a value of about $871.6 million.
“I am further encouraged by strong results in investment demand for gold,” said Burton, added that sustained investor interest in gold ETFs “was particularly satisfying....”
In addition, the market for new coins was more active, most notably in Turkey and the U.S. In June, the United States Mint released The American Buffalo, a 1 ounce, 24-karat (.9999 fine) gold coin - the first pure gold coin issued yet by the U.S. government.
Demand for official coins increased 64% on the same period last year. Solid growth was also seen in medallions and imitation coins in the Middle East and India.
Outlook
WGC concluded that the political and economic climate remains favourable to gold investment for the rest of 2006. The report further noted that “the fundamentals of the market are perceived as strong and the diversification benefits of gold are being increasingly recognised.”
“A period of price stability should see a recovery in the volume of demand and further growth in value. Consumers will return to the market once they perceive that the period of exceptional price volatility is over,” WGC wrote.
According to a market briefing by GFMS yesterday, precious metals are currently undergoing a degree of pressure as some of the war premium erodes from gold and the dollar shows relative resilience.
GFMS affirms that “the traditionally quiet summer demand season is well and truly upon us.”
Gold has encountered upside resistance in the $650-655 region with the eyes of the world on the cease-fire in the Lebanon, and slipped under liquidation and some short selling to test support in the area of $620, GFMS noted.
“Some sporadic physical demand is emerging to mop up any weakness, but we are not quite yet into the Indian buying season, and Asian investors are only cautious buyers with some speculators happy to take a quick turn,” GFMS wrote.
GFMS added that although the dollar has been resilient following good retail sales and trade figures, the medium-term sentiment remains bearish, which will continue to support gold.
But in a precious metals update today, David Morgan, author of “The Morgan Report,” told subscribers that gold and silver may see some weakness at the end of this month.
"With all that is going on in the geopolitical arena, gold and silver should be making new highs and they are not," Morgan said. "Additionally, the big money is heavily short this sector and they usually are correct."
The next several trading sessions are critical, according to Morgan. If September gold closes below $642/oz and maintains that level or lower for three days, a drop off even lower could be indicated, he said.
“It this occurs it will indicate a downtrend has initiated and a secondary top is in place,” said Morgan.
Gold Price Activity
Spot gold closed out the day at $630.75/oz, according to LBMA listings. Gold for December delivery closed down $13.70 at $625.30 an ounce on the New York Mercantile Exchange.
Spot gold averaged $627.71 per ounce in the quarter, a whopping 47% gain over second quarter of 2005 and 13% higher than in Q1.
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