The Hindu Business Line : WGC bullish on gold outlook, despite fall in global demand

Chennai, July 19 Global demand for gold fell 16 per cent year-on-year in the first quarter of this year, as bullion rallied past $1,000 an ounce. Demand in India dipped 50 per cent in the period.

However, the World Gold Council and investment consultants and many retailers are, by and large, bullish on the outlook for the metal.

Addressing the audience at the first India Gold Conclave, organised here by The Art of Jewellery magazine, Mr Paul Walker, CEO, GFMS, a London-based precious metals consultancy said, the world is still bullish on the outlook for gold this calendar year.

“The effects of the sub-prime credit crisis continue to provide a strong investment case for gold,” he said, adding that the knock-on effects of falling property prices on consumption and ultimately on equities, will drive demand for gold higher again.

There was a drop in gold production in 2007 – countries such as Peru, South Africa and the US each of 10 tonnes. “Of course, pushed higher by China and Indonesia, Asia was the only region to return a meaningful rise, posted 12 per cent increase,” he pointed out.

He said the mine production in the current year expected to maintain at 2007 levels. During the current year, the continued losses in South Africa are expected to be broadly balanced by increased production in Russia, West Africa and Brazil.

According to Mr Walker, global investor interest is expected to be strong throughout this year and potentially through to early next year.

“Imbalances in the market suggest that sooner or later the gold price will have to fall. Nevertheless, this is most unlikely to occur in this year, and potentially not until well into next year,” he asserted.

Speaking on the Gold Investment Market, Mr Keyur Shah, Associate Director, WGC, said Indians continue to invest mainly in the physical form of gold.

“This tends to be a limiting factor in times of extreme price volatility since consumers treat investment in coins and medallions the same as jewellery purchases,” he said.

However, one could view the current situation is a temporary phenomenon; a fallout of the current economy downtown driven by high crude prices, inflationary pressures, weakening of the rupee, he said. Mr Shah pointed to the fact that though India is the largest gold consumer, the annual per capita consumption of gold is half of that in the US and far below the West Asian countries.

Jewellery retailers say that as Indian jewellery market is very sensitive to price volatility, the demand is expected to pick up again during any period of greater price stability.

Mr Mehul Choksi, CMD, Gitanjali Group and Chairman of FICCI’s National Gems & Jewellery Committee, said there is a need for better hallmarking facilities and branding of jewellery. Citing a BIS study, he said over 80 per cent of the jewellery sold is of lower karatage.

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