JEDDAH, 5 June 2006 — Even as the demand for gold in Saudi Arabia and elsewhere in the Gulf has marked a decline, there has been a significant increase in the interest shown by institutional investors in the first quarter of 2006.
The fall in demand seen in the region is attributed to volatile prices of the precious metal and also the stock market crash, according to the Q1 report issued by the Dubai-based regional office of the World Gold Council (WGC).
Sustained interest of different groups of institutional investment drove the gold price to a new 26-year high during the quarter. This resulted in an increase in demand for institutional investment and decrease in demand for gold jewelry.
Recent months have seen a rising interest in gold by certain long-term investors, such as pension funds all over the world, who are starting to acknowledge its portfolio diversification benefits.
In total, worldwide gold demand fell by 16 percent in Q1 compared to the same period last year, reaching 835 tons. However, gold demand in dollar value increased by nine percent compared to the corresponding quarter last year. Demand for gold jewelry fell by 22 percent in terms of tonnage and increased by two percent in dollar value and reached $9.5 billion.
In Saudi Arabia, demand fell by 30 percent due to high and volatile world gold prices as well as the stock market crash since February-end, which highly affected both consumer sentiments and the purchasing power of individuals. Moreover, high gold prices prompted many individuals to sell part of their gold savings and investment in gold bars, coins and jewelry. Total demand across the Kingdom reached 28.3 tons in Q1.
As for other Gulf states, demand was affected by high world gold prices as well as regional factors. Gold demand in the UAE fell by 15 percent reaching 28 tons. Also, Kuwait followed a broadly similar scenario. Total gold demand in the GCC, excluding the Kingdom and the UAE, was 10.7 tons. Demand for gold jewelry fell by 36 percent in Egypt and 43 percent in Turkey due to rising gold prices and falling tourist numbers.
“The rise and volatility of world gold prices affected the demand in the region to a big extent,” WGC Managing Director Moaz Barakat emphasized. “However, at the same time, this resulted in an increasing value for those who had saved gold and gold jewelry. Some of them sold part of their gold bars, coins and jewelry to have a profit, which reached 100 percent in many cases due to high gold prices.”
Barakat added that consumers, however, continued to buy gold jewelry of lower weights and paid higher prices because of their belief in the importance of gold and gold jewelry. Increasing interest in gold from long-term investors regionally and worldwide backs such moves. “What’s more, gold jewelry sales are expected to increase in Q2 this year,” he said.
The quarter also witnessed a 15 percent drop in total world gold supply as a result of substantial de-hedging of gold mines and low central bank sales.
According to the WGC, a report from London-based Gold Fields Mineral Services says the decrease in demand for gold jewelry in the Middle East-Gulf region is justified normally as a predictable reaction to a volatile gold price especially in Asia and the Middle East. There have also been certain regional factors contributing to the fall in demand.
As for the first three countries accounting for high gold demand, the WGC said that while demand for gold jewelry fell by five percent in tonnage in the United States due to tighter consumer spending on luxury goods and high gold prices, gold demand in China rose by two percent in tonnage especially because of the increase in demand for traditional 24k gold jewelry usually bought by consumers for individual investment. There has also been an upward trend for seeking 18k jewelry, often with Italian-inspired designs promoted by the WGC in China.
In India, the first in the world in gold demand, consumer demand fell by 38 percent in Q1 as against the exceptional Q1 of 2005. At the same time, India’s retail investment demand rose by 32 percent compared to Q1 2005 and by 90 percent compared to Q1 of 2004. This exceptional retail investment performance was due to increased promotions by banks following the success of earlier WGC-assisted campaigns and general belief that gold prices will continue to rise.
Demand for gold from industry increased by five percent in terms of weight. It remained the same for dental use, increased by 12 percent for electronics used and decreased 10 percent for other industrial and medical uses. However, the total gold demand for industrial and medical uses witnessed an increase in total dollar value.
