>Gold demand ticks up but may not be sustained
By: David McKay
Posted: 05/24/2001 04:00:00 PM | © Miningweb 1997-2001
JOHANNESBURG – The World Gold Council's (WGC's) latest figures show record first quarter demand of 826 tonnes, about five per cent higher than the first quarter last year. However, the council is unsure if the uptick will be sustained
owing to fears of a slowing US economy. "It's a bit too early to call this a record year because the US ecomony is slowing. But it's not a recession," says the council's economist, Jill Leyland. The US, which accounts for 10 per cent of world gold demand, is also one of the markets where public taste in gold jewellery is enjoying a renaissance.
Consumption of gold in jewellery was six per cent higher at 735 tonnes and also comprised a new first quarter record.
It's far cheaper to buy a solid gold band than a gem encrusted platinum set and this factor is driving gold jewellery sales in the US. The renewed interest in yellow gold also extends to Japan, a market which showed a 19 per cent increase in
demand in the quarter over last year.
If anecdotal evidence is to be believed, gold is becoming a popular fashion item again. Leyland says Vogue magazine devoted its December issue to gold jewellery and luxury product outlet, Tiffany, is actively marketing to its consumers.
Jewellery comprises 75 per cent of total demand in the WGC's figures.
But is the council smoking its socks when so many sources in the gold market say the actions by bullion bankers, producer hedging and sheer sentiment inform the gold price more than fundamentals? Leyland agrees there's a discernible shift in the
way gold is traded in the market starting with fears over central bank sales.
The Washington Agreement, in which the signatories placed a five-year moratorium on further official dishoarding in September 1999, is finally having an effect, Leyland says. The lag effect is due to the strength of the dollar and continued gold
supply from non-signatories to the Washington Agreement. The threat of inflation in the US, the smaller contango and market sentiment also support the notion of sustainably stronger gold price.
But investment demand remains a problem with WGC first quarter figures showing a three per cent decline to 91 tonnes.
Leyland says the outlook for gold on this score is "not great" for the rest of the year owing to the build up of inventory ahead of Y2K fears. Dishoarding will shroud an increase in interest for investment gold but if the gold price continues to trend
up investment demand will recover, she says.
The Indian market – the world's largest for gold demand – was 23 per cent higher following the marriage and festival period which, in turn, leads to restocking by retailers. The earthquake in India, however, is unlikely to hit demand significantly as
it occurred in an area which comprises only five per cent of total Indian consumption, according to Leyland's estimates.
There were sharp falls in demand in Turkey and Taiwan down 38 per cent and 31 per cent respectively. This was owing to economic difficulties and continued weakness in investment demand. |
