<A Bugs Eye View Of Bullion Banking>
Gold investors should memorize this one for an understanding of this market. However, to present the full facts I'd make a few additional observations. He gives the gap as 1500 tonnes. Depending on what source you use, it could be only 1000, but 1500 is within range (see posts 70450, 70460, 70468 for discussion). Veneroso uses 2500 tonnes as production/demand gap number. He didn't mention that CB's sell 400 tonnes a year (twenty year average, and current rate). The true gap is probably 600 to 1100 tonnes and can only be filled by "accelerated supply" (spec carry trades, EXPANDED and additional hedging from producers, not just rollovers, or completely new and additional levels of CB selling: unlikely). The claims that this is being met by "scrap" is largely nonsense.
But, the existing gap isn't the only issue. Demand is growing nicely (see story below on India, the largest market and China, an emerging market), and mining supply is going to contract.
Monsoon hopes revive gold demand
By Ramnath Subbu
MUMBAI, MAY 26. The forecast of a normal monsoon this year will gladden not only the farmers but the gold industry as well. The year 2000 saw drought in vast parts of western India and floods in some other areas.
This year, the monsoon will have a far greater role to play. The farmers are just about scraping the bottom and a good monsoon will boost the demand for the yellow metal and firm up prices. The other factors are a low interest regime and a weak stock market.
Gold prices have moved up smartly this month from Rs. 4,325 per 10 grams for standard gold in the domestic market to Rs. 4,600 before closing for the week at Rs. 4,510.
International prices too witnessed an upsurge during the month and having crossed the $265 per ounce level in early-May they perked up further last week to breach the $275 level. Despite the Bank of England's 20 tonne auction a fortnight ago, gold experienced a massive surge and found buying support at rising levels. It closed the week at $276.25 per ounce.
According to Mr. Dinesh Parikh, bullion analyst, ``The hectic activity in international gold market can be attributed to the fact that funds were buying gold while there was selling by Australia.'' Fund interest was sparked by the U.S. Fed's decision to cut interest rates by 50 basis points last week. There was profit-taking later by the funds. There is also news that global gold stocks had come down by half since December.
India has been a steady buyer however and there is news that China is making an entry. The World Gold Council reported last week that the Governor of the People's Bank of China has confirmed that China will launch its first gold exchange in Shanghai in the second half of 2001. Producers will be allowed to sell directly into the market, while retailers, wholesalers and processors will no longer have to apply for licences for gold transactions.
China is to gradually relax restrictions on gold imports along with the country's foreign exchange reforms, but no time frame has been fixed for this. East Asia and Asian countries are seeing a picking up of demand.
Indian gold marketmen believe that the demand will remain buoyant uptil the marriage season - another three weeks. However, after the monsoon, demand may fall so prices may not shoot up. This year, though, demand may rise as there are good reports about the monsoon.
Another interesting factor is that in the large gold consuming areas - Gujarat and Rajasthan, the co-operative banks scam which surfaced last month has eroded the faith in banks and could see people opting for gold as a safe investment.
Indian consumption of gold was at 243 tonnes for the first quarter of 2001, which is 23 per cent higher than the corresponding period of last year, according to Gold Demand Trends brought out by World Gold Council (WGC).
Demand was boosted by a buoyant season of marriages and festivals, especially in the South. A further boost came from retailers restocking after a period of good sales over the last six months.
Further, official imports were 26 per cent higher than a year earlier at 170.8 tonnes. The most important change that has so far become apparent as a result of the bullion banking scam in Ahmedabad has been a shift in both gold imports and jewellery fabrication to other centres, notably Jaipur, the report says.
According to figures released by WGC, the first quarter of 2001 saw continued healthy growth in gold demand. Demand for gold jewellery and personal investment in the world's 27 leading gold countries rose to 826 tonnes; 5 per cent higher than demand in the first quarter of 2000. Globally the trend in jewellery demand was firm with consumption 6 per cent higher at 735 tonnes.
Mr. Derrick Machado, regional director, WGC (India) said, ``India's sturdy growth in demand is encouraging and a clear indication that we still maintain our position as the world's largest gold market. We believe this demand trend will continue, especially in rural India. While we are expecting an insignificant fall in demand in urban India with the decline in the stock market, the overall positive gold demand trend is expected to continue over the next quarter.''
According to Mr. Parikh, ``The Indian rural market could see demand going up by upto 10 per cent next year. Gold demand in India has not reached anywhere near saturation point.''
In Gold Demand Trends, first quarter highlights, published by WGC, Ms. Haruko Fukuda, chief executive officer, WGC said, ``This is an encouraging start to the year. I am particularly pleased to see the strong demand in India, the world's largest gold market, and the way in which U.S. gold jewellery demand has grown despite the signs of economic slowdown. In the immediate future, economic slowdown may dampen growth in the U.S. and some other markets, but the underlying trend in gold jewellery consumption is strong. With the additional promotional funds which the industry is providing and the fashion swing back to gold, I am confident that we shall see continued healthy demand in the future.'' |
