Thread: Gold glisters for investors, but not consumers

Gold glisters for investors, but not consumers

Demand rocketed 38 per cent in the first quarter, largely through traded funds

By Sarah Arnott
Thursday, 21 May 2009

Demand for gold continued to rocket in the first quarter of the year, the World Gold Council (WGC) said yesterday, although it is wary investors rather than recession-spooked consumers are fuelling the booming growth.

Between January and March this year, total demand for the yellow metal rose 38 per cent in volume terms to more than 1,000 tonnes, according to the report published yesterday. In value terms, the market soared 36 per cent to hit $29.7bn (£19bn).

Investor demand – for both exchange traded funds (ETFs) and the traditional bars and coins – shot up by a whopping 248 per cent in volume terms to 596 tonnes, says the WGC. In the last half of last year, demand for the physical metal was the big winner. In the first quarter of 2009, demand for bars and coins was up by a respectable 33 per cent to 131 tonnes. But the real boom was in funds. The quarter saw a record level of investment in ETFs, with demand rocketing 540 per cent to 465 tonnes, worth a total of $13.6bn. The SPDR Gold Trust – the world's biggest ETF – has added more than 325 tonnes since the start of the year, now holding more than 1,105 tonnes, with a value of more than $33bn.

But while wary investors head for the traditional safe haven, both industrial gold and jewellery buying has been hit hard by recession. Industrial demand was down 31 per cent compared with the first quarter of 2008. Demand for jewellery by 24 per cent. For jewellery, only China bucked the trend, recording a 3 per cent rise in sales, while in market-leading India demand dropped by a shattering 83 per cent.

For the worst-affected regions, it was not simply a matter of fewer jewellery buyers. "Western markets continued strongly with investment in the first quarter, whereas non-Western markets mirrored the jewellery side," said Rozanna Wozniak, an investment research manager at the WGC.

The regional split affected not only the gold price, but also buyers' behaviour. Although the US dollar gold price did not hit a record high in the period, in the metal's more traditional markets – including India, Turkey and the Middle East – local currency fluctuations sent it up to all-time highs. The result was falling consumer purchases, and investors selling out to make the most of the high prices, sending the global US dollar price fluctuating from as low as $800 per ounce to near $1,000.

Since March, the picture has changed again. The massive flows of investment into ETFs have slowed, bringing down prices and enticing jewellery buyers tentatively back into the markets. The gold price is now broadly more stable, hovering between $850 and $950. As it rises, jewellery buying slows and more recycled gold comes to the market. As it falls, increased retail interest and less recycled gold help to move it up again. "There is a floor and ceiling now keeping the price within a range," Ms Wozniak said. "There are these ebbs and flows in the gold market as the different strategies of investors and jewellery buyers come into play and balance each other out."

http://www.independent.co.uk/news/busin ... 88654.html

Gold: investor demand soars amid inflation fears

Gold investors continued to flock to the safe-haven metal in the first quarter as fears of future inflation and ongoing financial uncertainty continued.

By Paul Farrow
Last Updated: 11:34AM BST 20 May 2009

Total demand for gold in Q1'09 rose 38pc year on year to 1,016 tonnes, representing a 36pc rise in value terms to US$29.7bn.

According to figures published today by World Gold Council (WGC) in its Q1'09 Gold Demand Trends report, identifiable investment demand for gold, which includes exchange traded funds, (ETFs) and bars and coins, was the major source of growth in the quarter, reaching 596 tonnes, up 248pc on Q1'08.

Net retail investment (total bar and coin demand) remained highly robust, rising 33pc year on year to 131 tonnes, despite some bar and coin dishoarding in eastern markets as investors took profits. Germany was the single biggest bar and coin market in Q1'09, where demand rose 400pc on Q1'08 to 59 tonnes, with inflation concerns being a key buying motivator.

The impact of the recession on consumer discretionary spending continued to take its toll on both jewellery and industrial demand. Gold jewellery demand was down 24pc on year earlier levels, with most countries suffering a decline as consumers responded to the high and volatile gold price, which reached record levels in some countries, compounded by difficult economic conditions.

Total demand in India, traditionally the world's largest gold market, declined significantly under pressure from record rupee prices and a major deterioration in the domestic economy. Demand fell 83pc on year earlier levels to just 17.7 tonnes.

Industrial demand for gold in Q1'09 was 31pc down on Q1'08, with the electronics sector being the major contributor to this decline. End user demand for electronics goods has been badly affected by the downturn in consumer spending on items such as laptops and mobile phones.

Aram Shishmanian, CEO of World Gold Council, said: "There has been a seismic shift away from capital appreciation towards wealth preservation and we believe this trend will define investment behaviour in the next decade.

"Gold, as one of the few assets that has held its value during the current economic crisis, has been sought out by investors who are drawn to its proven protective attributes as well as safeguarding themselves from the erosive effects of future inflation.

"The shift in the balance of demand that we have witnessed this quarter, where the gold price has risen despite a severe drop in jewellery and industrial demand, perfectly demonstrates the robust nature of gold's fundamental supply and demand dynamics.

"While jewellery demand is unlikely to return to more positive territory in current market conditions it remains a key market driver. Affinity for gold jewellery remains and we are confident that demand will grow as consumer confidence and purchasing power returns."

http://www.telegraph.co.uk/finance/pers ... fears.html