Gold demand is buoyant
Ines Schumacher | Wed, 20 May 2009 13:56
miningmx.com
[miningmx.com] -- GLOBAL gold demand leapt strongly in the first quarter of 2009 and the World Gold Council (WGC) is confident the supportive environment will continue, even if an economic recovery takes place.
Gold is traditionally a safe haven for investors in times of economic turmoil, and the global meltdown has seen strong investment growth in the metal.
In the first quarter of 2009 demand rose 38% to 1,016 tonnes, representing a 36% rise in value terms to $29.7bn. Investment in gold coins, bars and other investment instruments shot up 248% to 596 tonnes.
“There has been a seismic shift away from capital appreciation towards wealth preservation and we believe this trend will define investment behaviour in the next decade,” said Aram Shishmanian, the WGC’ s CEO.
Gold also plays a role in shielding investors from the effects of rising inflation, one of the concerns raised by the massive stimulus packages the United States and other countries have implemented to kickstart their economies.
“It’s great we’re seeing an economic recovery, but it would be unusual to see such a rapid turnaround. If further signs of recovery emerge, inflation concerns would probably intensify and that’s supportive for gold demand as well,” WGC investment research manager Rozanna Wozniak told Miningmx.
High gold prices and tough economic conditions weighed heavily on jewellery demand, which fell 24% year-on-year for the first quarter, the WGC said in its Gold Demand Trends report. Industrial demand was 31% lower than year-earlier levels.
India, traditionally the world’s largest consumers of gold jewellery, experienced an 83% decline in demand to 17.7 tonnes because of record high rupee prices for the metal as well as a deterioration in the domestic economy.
Wozniak said global demand for jewellery has increased slightly in recent weeks. “The sustainability of this development depends on the price,” she said.
In the long term, the WGC expects investment to continue underpinning gold demand.
Gold-backed exchange-traded funds (ETFs) showed the strongest performance in the first quarter, with inflow into the investment instrument backed by physical gold up 540% at 465 tonnes.
“We’ve seen ETFs flattening out at the beginning of this month, but the nature of this market is that it has demand surges and then a brief period of flattening out,” Wozniak said.
She considers ETFs a sticky form of investment because investors do not sell their ETFs when the gold price drops.
On the supply side, the WGC reported a 34% increase in gold supply in the first quarter to 1,144 tonnes, with nearly half of that coming from scrap gold. Recycled gold flows reached a record high in the quarter, fuelled by distress selling and profit-taking.
“This shows gold jewellery is more than just an adornment. It’s a way to generate cash,” Wozniak said.
Lower levels of producer de-hedging contributed to the higher levels of supply.
The VM Group’s Fortis hedging and financial gold report said it was the first time in seven years global gold hedging was unchanged on a quarter-to-quarter basis. The figure remained 16 million oz.
“This is an important development and suggests the gold market will no longer have significant support from de-hedging,” the report said. “However, it does not mean we are going to see major increases in hedging.”
The turnaround came from new hedging, or forward sales of gold, to secure finance for new mining projects as well as reduced de-hedging during the quarter by companies with major positions, like AngloGold Ashanti and Barrick Gold. |
