GLOBAL SEARCH FOR GOLD — Gold demand rises as prices languish

Reports released by two prestigious precious metals research goups paint rosy portraits of future gold demand.

Both New York City-based CPM Group and London-based Gold Fields Mineral Services refer to record physical demand for the yellow metal, citing thriving jewelry and electronics industries, particularly in the Far and Middle East.

According to the CPM report, demand for gold used in fabrication is expected to rise in 1998, as are supplies of newly refined gold. Fabrication demand, spurred by the increased usage of gold in the world’s jewelry sector, is expected to rise to 99.1 million oz. next year from 98.1 million oz. in 1997.

Gold Fields notes that much of that demand stems from the strengthening economies of the Middle East (particularly Saudi Arabia and Egypt) and India. Demand in the Middle East in 1997 rose to 360 tonnes (an increase of 36% over 1996 figures), while demand in India rose to 330 tonnes (an increase of 29%). In addition, demand for the yellow metal in China was up 19%, chiefly as a result of increased jewelry fabrication.

The electronics industries of Japan, South Korea and Taiwan helped boost demand in the Far East by 6% over figures recorded in 1996.

According to CPM, supplies of refined gold are expected to rise to 92.8 million oz. in 1998 from 89.9 million oz. in 1997. Gold Fields notes that world mine production rose only modestly by 1.4%, which was not sufficient to keep up with demand. The shortfall was compensated by above-ground bullion stocks, which entered the market via three routes: the sale of official sector gold stocks, hedging practices such as forward sales, and gold loans.

This record demand, Gold Fields notes, has yet to bolster the price of gold, which was depressed in the first half of 1997 as a result of central bank sales and short-selling by proprietary traders and gold bullion desks.

The CPM report notes that the gold market stabilized somewhat in August and September, following a sharp selloff in early July that depressed prices to US$314.60 per oz. — their lowest since 1985. Prices have since ranged from US$319 to US$331 per oz.

According to CPM’s report, central banks will remain the largest net sellers of bullion in 1998, unloading a projected 18.5 million oz. Gold Fields is more cautious, however, noting that the opportunities for such sales are dwindling with the approach of the European Monetary Union, which is scheduled to take effect in 1999.