Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: long-gone who wrote (54472)	6/16/2000 9:12:00 AM
From: lorne	Respond to of 116823

INTERVIEW-Gold needs sharp marketing or risks demand crisis . LONDON, June 16 (Reuters) - Gold demand faces a risk of severe decline unless the sector, preferably led by central banks, embarks on a huge marketing campaign, leading industry analyst Andy Smith said on Friday. In a special report, Smith said it was wrong to think that gold demand -- especially in top consumer India -- was immune from the financial and spending choices which progress brings. These risks, along with the erroneous assumption that demand must rise with prosperity, were not factored into the gold price. ``It's a risk that's not in the price at all, but the risk is sufficient for the sell side to be worried,'' warned Smith, analyst at Mitsui Global Precious Metals in London. ``That includes central banks, who should pay the bulk of the marketing. They should be worried even if I'm only partly right,'' he told Reuters in an interview. In his research, Smith looked at all aspects of the gold market from the social and demographic to central bank sales and countries' financial statistics using new World Bank databases. ``The untouchable has been physical demand and the idea has been that the likes of India will always be there. Everyone is assuming physical demand is there and growing. But they're just not seeing the challenges gold demand will face.'' CHALLENGES LURKING NOT SO FAR AWAY Smith said challenges to gold as a saving and as something to be consumed were signalled by data showing growth in net gold demand relative to annual world GDP growth. ``The relationship between the stock market or insurance market and GDP growth is strong. But as GPD is growing, the real price of gold is falling, yet gold demand is falling too and that's not good,'' said Smith, an analyst for 13 years. ``All of this shows there is enough to worry about. As countries get richer, inflation falls, so the demand for inflation hedges falls too.'' Smith said competition for gold was kicking in. As per capita income grew, non-life insurance, life insurance, bank credit and stock markets all posed obstacles to gold demand. People were beginning to invest in these activities rather than in gold, and that was where marketing came into the equation. ``As people get richer there is more competition for spending their money and insurance is one such direct competitor to gold. Liberalisation is very much a double-edged sword and the challenges are starting sooner than many expect.'' The risk for market players was that they perceived there was no risk, he added. INDIA -- WEDDED TO GOLD? ``We've taken so much for granted, that demand will be there (India). It's not the case,'' said Smith. ``If you think it's a straight line, you've got your head in the sand. It's messier than that and the supply side has some waking up to do.'' While India is widely considered a captive gold market, half of the country's gold demand is traditionally for weddings. ``People think the Indian market will always be there, they are the main growth hope as they get richer -- but I think those are just assumptions.'' Demographic and social changes meant the number of weddings in India was likely to decline, leading to a fall in dowries, which were predominantly gold. ACTION IS NEEDED NOW Smith said the industry needed to undertake a major marketing campaign to ensure steady demand in future. ``Pre-emptive action is needed. Marketing expenditure will be several million (U.S.$), but central banks have already lost that amount by, say, the Duisenberg Agreement,'' he said, referring to a 1999 accord whereby 15 European central banks pledged to limit combined bullion sales to 400 tonnes a year over five years. ``In the early 90s the balance started to come right. Now it's not going to flip over but it will go into reverse,'' he warned. ``It doesn't matter if I'm right, the market's not going to wait. But because none of this has been thought of, just a small perception of risk should price this in now.'' He said a multi-year marketing programme led by the central banks would look like a serious commitment. ``They're in a fix and they don't have a window to escape through. They need to recognise the issue and in order to maintain the width of the window they need to spend.'' live.altavista.com