Economic uncertainty holds back gold demand

Overall gold demand for jewelry, retail investment, industrial and dental uses amounted to 729 tonnes in the second quarter of 2002, 14% lower than a year earlier, according to a report by the London-based World Gold Council.

Price rises combined with political and economic concerns encouraged retail investment purchases in some countries while these same factors had an adverse effect on other forms of demand, the report says.

Gold price rises in many currencies, concern over the fragile world economy, and political worries (especially in the Middle East) combined to sap demand.

Purchases of gold for jewelry fell 16% to 581 tonnes from 690 tonnes in the same period of 2001. Meanwhile, demand for industrial uses at 74 tonnes was reduced by 6% from 79 tonnes in second quarter of 2001.

A large factor in the overall decline in jewelry purchases was due to a 37% fall in India, the world’s largest gold consumer. This was chiefly attributable to the rise in the rupee price of gold during the quarter.

Indian demand is particularly sensitive to price movements; both trade and consumers hold back from purchasing in periods of price volatility.

In countries where the economic situation was improving, jewelry demand was more upbeat. Purchases in Indonesia and Vietnam were 27% and 20%, respectively, higher than a year earlier. Demand in Turkey, while remaining below the record levels of earlier years, almost doubled from the depressed levels witnessed in 2001.

Industrial demand in East Asian countries was also higher than a year earlier, suggesting that a recovery in the electronics sector could be under way.

Global retail investment demand was also down in comparison with the same quarter of 2001. Political and economic concerns underpinned a strong increase in some countries, but the rise in the price of gold also encouraged people to liquidate their gold assets in others. Nevertheless, following a strong first quarter, retail investment during the first six months of the year was still 12% higher than in the first half of 2001.

Although overall gold demand was lower in terms of volume, the dollar value of purchases was virtually unchanged at US$7.3 billion. This was a consequence of the rise in the U.S. dollar price of the yellow metal, which averaged US$312.67 per oz. for the period. That’s US$45 per oz., or 16.8%, higher than in the second quarter of 2001.

— The preceding is from Gold Demand Trends, a quarterly publication of the World Gold Council.

Source: World Gold Council