JEDDAH, 27 November 2006 — Gold demand in Saudi Arabia fell by nine percent reaching 33.9 tons due to high and volatile world gold prices as well as the restraining impact of the stock market slump since the first half of 2006. The slump highly affected both consumer sentiments and the purchasing power of individuals, especially middle-income consumers, the Dubai-based regional office of the World Gold Council (WGC) said yesterday, in its report on gold demand in the Middle East and worldwide for the third quarter of 2006.
Although gold jewelry demand in the Kingdom decreased by 10 percent reaching 31.6 tons, gold retail investment demand (gold coins and bars) increased by five percent reaching 2.3 tons. Moreover, back-to-school season had a negative effect on gold demand as it requires considerable budgets from consumers. “Still, future outlook of gold demand in Saudi Arabia is more positive due to the coming Haj period that will increase the gold sales among pilgrims as well as the possibility of reducing gold jewelry customs tariff in Saudi Arabia from the existing 12 percent to five percent as is the case now in all other GCC countries,” the report said.
Quarter three was a quarter of transition. Consumer demand (gold jewelry and gold retail investment) was subdued at the beginning of the quarter with the market battered by the volatile price movements of the previous 10 months, as consumers in the price sensitive markets of Asia and the Middle East have clearly accepted $570 to $600 per ounce as an acceptable price range. However, demand appears constrained at prices above $600.
In total, worldwide gold demand fell by three percent in Q3 this year compared to the same period last year, reaching 817 tons. However, in dollar terms Q3 demand was 37 percent higher than a year earlier. In September 2006, total demand reached $62 billion, the first time it has pushed through the $60 billion level. As for gold jewelry demand, it fell by four percent in terms of tonnage (592 tons) and increased by 36 percent in dollar value, setting a new record at $11.8 billion. It is worth mentioning that total world gold supply declined by 11 percent in Q3 this year as a result of substantial quantity of de-hedging and also lower central bank sales under the Central Bank Gold Agreement (CBGA). During the CBGA year ended Sept. 26, there were over 100 tons less than the 500-ton limit.
In its report, according to figures compiled by Gold Fields Mineral Services (GFMS) in London for the WGC, the report showed a decrease in demand in the Middle East-Gulf region for gold jewelry by eight percent in tonnage terms compared to the earlier year. This decrease in demand is justified normally as a predictable reaction to a volatile gold price especially in Asia and in the Middle East along with other local and regional factors such as the war in Lebanon.
In the UAE, the demand was stable due to high tourist numbers in Q3 as compared to the same quarter last year and in spite of the increase in living cost, especially in Dubai. Gold jewelry demand was down by less than one percent, especially 22K gold jewelry that is preferable to Indians, while net retail investment (gold coins and bars) was up by five percent. Total demand reached 22.9 tons, which is equivalent to the demand in the same quarter of 2005.
As for other Gulf States (Kuwait, Oman, Bahrain and Qatar), which had less promotion for gold and jewelry, total gold demand declined by nine percent reaching 12 tons.
In Egypt and Turkey, there was a slight recovery of gold jewelry demand. It was a remarkable recovery of demand in Turkey from 43 percent in Q1 2006 to a 10 percent fall in Q3 2006. The net retail investment increased two percent in Q3 in Turkey. As for Egypt, total gold demand fell by 16 percent — 15 percent in jewelry and 60 percent in retail investment. This was due to a rise in the gold price, which was possibly stronger in Egypt due to the depreciation in the Egyptian pound in 2003 and 2004, although the number of tourists was higher in quarter three this year and the Egyptian economy was reviving.
Moaz Barakat, managing director of WGC in the Middle East, Turkey and Pakistan, said: “World gold price volatility has affected the demand as anticipated in the beginning of this quarter, however, demand has increased toward the end of Q3 supported by price stability and consumers have become comfortable with the range of $570 to $600 per ounce.”
Barakat added: “The positive effect of the marketing and promotional campaigns held by the WGC and its partners from the gold traders in several countries in the region has been very much apparent on gold jewelry demand, especially with the stability of world gold prices. This is very much similar to the council’s role in increasing world retail investment demand through the gold-backed exchange traded funds (ETFs) launched by the council in several world stock markets.”
As for the first three highest gold demand countries worldwide, the situation varied. While demand on gold jewelry fell by eight percent reaching 77.5 tons in the US due to consumer spending on luxury goods remaining strong as before and in spite of high gold prices, gold demand in China rose by three percent reaching 71.7 tons, especially because of the increase in demand of traditional K-Gold — 18-carat gold jewelry often with Italian-inspired designs, which was promoted in China and was 10 percent higher in sales than Q3 2005.
In India, the first in the world in gold demand, consumer demand rose by 16 percent reaching 164.8 tons in Q3, higher than in Q3 2005. At the same time, retail investment demand increased in India by 31 percent compared to Q3 2005.
Finally, gold demand for industrial use increased by five percent in terms of weight, 49 percent higher in dollar terms. As dental demand fell by five percent, the drop resulting from lower demand in Japan and Germany, an increase by nine percent (79.1 tons) for electronics demand set a new quarterly tonnage record.
