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

To: Alan Whirlwind who wrote (12063)	5/22/1998 3:42:00 PM
From: Alex	Read Replies (1) \| Respond to of 116826

Economic crisis cripples Asian demand Andy Spicer The Asian economic crisis has affected demand for gold, with those countries in most trouble being large sellers of the precious metal. Both South Korea and Indonesia have seen large dishoarding and sales of gold from the private sector. This added to the dramatic fall in global demand for gold highlighted by the World Gold Council (WGC) in its quarterly Gold Demand Trends report released earlier this week. A clearer picture is starting to emerge on the reasons for the dip in the gold price. The WGC said global demand fell 55 percent to 342,1 tons in the first quarter of the year, mainly because of these sales into the market from Asia. In developing nations covered by the report, the trend was even worse, at a decline of 70 percent to 177,8 tons. The WGC warned that, with the political and economic troubles not over in the region, this trend could continue. The bulk of gold coming back into the market in the developing world was from the collection campaign in South Korea. Here the government asked private individuals to bring their gold to the central bank so as to stabilise and halt the rapid fall in the value of the won, the Korean currency. The second large sale of gold came from individuals in financial distress in Indonesia, which has been the worst affected, both politically and economically, of Asian nations. The WGC estimates that southeast Asian sales were mostly in the form of high-carat jewellery and that net sales in the region were 268,1 tons. This compared with the offtake in the period a year earlier of 156,8 tons. "Gold gave a powerful demonstration of its traditional role as a store of value and asset of last resort, and that lesson has not been lost in the countries concerned. South Koreans demonstrated their patriotism by responding to the government's Save the Nation' campaign with sales amounting to 250 tons of gold in order to help the country repay its huge loans from the International Monetary Fund. "In Indonesia, gold came to the rescue of private citizens who were unable to take advantage of the fact that the price in local currency had almost doubled in less than a year to sell back into the market." The WGC also said: "The Korean campaign ended on March 14, and the flood of dishoarding from Asia has dried up. Early reports from the region indicate the demand is turning strongly positive in the second quarter. Now this extraordinary statistical anomaly is out of the way, the outlook is for a good recovery over the remainder of the year." Asia as a whole had a mixed bag of demand results, with north Asia relatively untouched by the turmoil in southeast Asia and South Korea. Demand there totalled 92,3 tons, down 16 percent compared with the first quarter last year. The Middle East and India had record demand of 335,1 tons (up 11 percent) and driven by the continued growth in India (up 17 percent) and the Middle East (up 11 percent). Turkey's demand fell 11 percent, after overstocking the year before. But in Asia, the situation in Japan is a major concern for the gold market. The Japanese economy is still sluggish, and there are no signs of recovery even after extensive economic stimulus packages. Demand was just 24 tons, down a massive 40 percent on an already weak first quarter last year. This reflected wide-ranging pessimism in the jewellery trade in the country and some distress dishoarding of bullion, said the WGC. This weakness offset investment demand growth in the US and Europe as Japanese demand for this reason slumped. "First-quarter Japanese demand was half the level of a year ago and one quarter of the level of five years ago. The wholesale jewellery business was virtually dead due to the continued credit squeeze and the fear of bad debt," said the report. "While pessimism prevailed at the trade level, consumers flocked to new stores such as Vendome and 4C which they perceived as attractive. These trend-setting new outlets are displaying gold jewellery prominently," said the WGC. On investment demand, the picture was just as doubtful. This is "in spite of the prevailing climate of financial uncertainty and the approach of the big bang'. There was some evidence of kilobar buying as well as smaller purchases by the man in the street and first-time buyers. Towards the end of the quarter, selling back into the market increased, reflecting some profit-taking but essentially distress-selling to make ends meet, reinforcing gold's image as the asset of last resort," it said. While the situation looks worrying in southeast Asia and Japan, in the developed markets in the US and Europe, demand was maintained at levels of a year ago. The UK had an impressive demand record, up 41 percent, and the US also saw robust growth at 10 percent. "There is nothing wrong intrinsically with the underlying trend in gold demand," the WGC said. The main black spot was net sales into the market by the two worst hit by crisis South Korea and Indonesia.