The Hindu Business Line : Record rise in gold imports; jewellery fabrication up 50 pc

A STRIKING feature of the first half of 2005 has been the phenomenal rise in both gross and net gold imports, with the latter pushing towards the 500-tonne mark against 306 tonnes during the same period in 2004.

GFMS (Gold Fields Mineral Service) estimates that all categories of off-take achieved record highs with jewellery fabrication rising nearly 50 per cent year-on-year. However, both coin minting and bar hoarding rose over 60 per cent, according to GFMS's Gold Survey for the first half of 2005.

Dr Paul Walker, CEO of GFMS, pinpointed one of the biggest influences on off-take in 2005. "The adjustment of price expectations, both amongst the end-consumer and through the value chain, has supported higher demand. Also, the fact that the price in the first half of 2005 was notably lower than the average price in the last quarter of 2004 appears to have encouraged off-take," he said.

He added, "one of the key drivers of gold jewellery demand in the first half was the success of the World Gold Council initiative to promote the Akshayatritya as a day to purchase new gold."

The relatively benign economic backdrop has also supported the consumption of gold in all forms.

Bar hoarding and coin fabrication rose dramatically, in each case by over 60 per cent, a faster growth rate than that seen for jewellery, reflecting a secular shift in the market share between strictly `investment' gold and jewellery.

The demand for coins from corporates for distribution to clientele and employees was huge. Demand for bars too was robust, though a trifle lower than that of coins.

The key driver behind the increases appears to be the perception that the gold market is still in a bull phase with the price slated to go higher. The fact that deposit rates have been lower has made investment in gold more attractive. The profits from the booming stock markets also appear to have funded the rise in `investment' gold.

Scrap inflow fell sharply in the first half. Much could be attributed to the fact that expectations have now adjusted to new price levels. In fact, GFMS information suggests that scrap would have been lower but for the fact that the Muslim population has been active in selling old jewellery to secure capital gain afforded by higher prices, their religious beliefs barring them from earning any interest.

Gold price will continue to be the key factor determining demand in the remainder of the year. With the GFMS base case for gold prices to rise sharply in dollar terms (albeit less rapidly in rupee terms as it strengthens against the dollar), demand is likely to fall in the second half of 2005.

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