Investors, speculators give gold market a boost

In its latest annual survey of the gold market, Gold 1994, Gold Fields Mineral Services (GFMS) of London says “1993 will be remembered in the gold market chiefly for the resurgence of buying interest from investors and speculators in Europe and North America.”

The purchase of more than 11 million oz. of investment gold — the highest level in more than a decade — brought an end to the 5-year bear market in the yellow metal, with the price rising by more than US$60 per oz. during the year.

On the other hand, the combination of a higher price and the economic weakness in Europe and Japan caused the first fall in gold fabrica-tion since 1987. The weakness was especially apparent in the jewelry sector, which used almost 7% less gold last year than in 1992.

In its analysis of the jewelry sector, Gold 1994 indicates that although price sensitivity in the Asian markets was partly responsible for the fall in jewelry fabrication in this region, other factors were also at work. In many markets, jewelry inventories were considerably run down, in sharp contrast to their rapid expansion over the previous two years.

Adding to the general weakness was the impact of the Chinese austerity program in the second half of the year, leading to a slowing of the Chinese “gold rush” that boosted Asian demand in 1992.

The main exception to the generally weaker tone in the jewelry market was the U.S., one of the few countries to record an increase in both the fabrication and consumption of jewelry last year.

Commenting on the outlook for jewelry, Stewart Murray, GFMS’s chief executive, said that “based on figures for the first quarter of 1994, it appears that consumers in the main Asian markets have adjusted to the higher price levels, with good support now in the US$370-$390 range.” Regarding the official sector, Gold 1994 notes that central banks once again made substantial sales of gold to the private sector, although the quantity sold was almost 25% less than in 1992.

Western world net official sector sales of 15.3 million oz. resulted from the operations of several Western world central banks, but there was no repeat of the major disposals seen in 1992 when the Belgian and Dutch central banks sold more than 19 million oz. between them.

The largest seller in 1993, Canada, disposed of nearly 3.9 million oz., but in April of this year Finance Minister Paul Martin suggested that the long-running sales program, begun in 1980, might soon be ended. While official holders continued to sell, the private investment community took a rather different view. The strong recovery in investor interest proved to be the main story for gold demand last year, despite the background of low inflation in most of Europe and North America.

On the supply side, Western world mine production showed little response to the higher price last year, with output rising almost 1 million oz. to 60.8 million oz., the smallest increase since 1981.