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Consumers dazzled by gold despite high prices

The outlook for 2005 pointed to weaker growth, however, as times were harder and jewellery purchases less likely.

Global jewellery demand, accounting for a major share of consumption, rose 7.5 per cent in the fourth quarter of last year compared with the year-earlier period, figures compiled for WGC by consultants GFMS Ltd showed.

Jewellery demand for 2004 was estimated to be six per cent higher from 2003 at 2,673 tonnes.

“What we’ve seen in the past is that when the price rises people tend to hang back from purchases. The reports we’re getting show that increasingly consumers expect prices to at least remain firm and probably to rise,” WGC economic adviser Jill Leyland told Reuters.

“A lot of jewellery is bought as a form of savings, or even investment. If you expect the price to rise that will increase desirability of the product,” she added.

Bullion prices shot to their highest in 16-1/2 years in December at $456.75 an ounce due to its inverse relationship with the dollar, which plumbed record lows against the euro.

Analysts polled by Reuters in January expect the price to extend gains in 2005.

Net retail investment grew 15 per cent in 2004, with the China Banking Regulatory Commission approval in late December for Chinese banks to market retail investment products seen as a breakthrough.

Institutional investor demand was less buoyant, despite a positive phase in the fourth quarter due to the launch of the New York-listed streetTRACKS exchange-traded fund in November.

Institutional investment, including stock building and other items, showed total net disinvestment of 124 tonnes in 2004 compared with net investment of 653 tonnes in 2003.

“This largely reflects net disinvestment over the year (notwithstanding the rise in Q4) by short-term speculative buyers who had bought in 2003 and who sold their holdings when the price fell back after the peaks early in the year,” the report said.

“The scale of disinvestment was substantially lower than the amount of purchasing in 2003, suggesting that many buyers had bought with a longer-term perspective and held on to their investment.”

On a regional basis consumer demand, including jewellery and retail investment, rose 17 per cent in 2004 in India — the world’s largest gold market.

Leyland also said a “mini rush” had developed in rural areas of India where people were living with the aftermath of December’s deadly Tsunami.

Leyland said distribution of financial aid to victims had prompted a surge in gold jewellery in certain affected areas of Tamil Nadu — a key gold buying state.

“The reason is that people can wear the gold on their person so it’s secure...until they are able to use it more constructively,” she said.

Turkey retained its spot as the third biggest global consumer market after India and the United States, with record annual jewellery consumption and consumer demand.

Demand in major consumer China was up 13 per cent in 2004, with better designs and higher gold prices helping to brighten the metal’s allure.

United States jewellery demand was down slightly on 2003 in volume terms, although value rose 12 per cent.

”Retail spending in the US was generally strong last year, but as the year progressed became more fragile due to its reliance on increasing household debt and to concerns about the future of the economy,” the report said.

Domestic demand from Italy fell in the last quarter of 2004, although a clear trend was seen there and in other western markets for moving towards higher-end pieces.