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Our Bureau

Mumbai, Aug 13 Led by a 47 per cent decline in demand for gold in India, the yellow metal appears to be losing its sheen globally too. The World Gold Council (WGC) report says the global demand has fallen 19 per cent to 735.6 tonnes in the quarter ended June 2007.

Gold jewellery demand across the globe fell 24 per cent to 504 tonnes on the back of a decline in consumer spending due to growing inflationary pressures.

Markets which saw the largest decline in jewellery demand for the quarter were India, which fell 47 per cent to 118 tonnes, the US 30 per cent to 33 tonnes.

However, China and Egypt saw two per cent and eight per cent increases.

Industrial and dental demand dropped by five per cent year-on-year to 111.8 tonnes.

Mr James Burton, CEO, WGC, said the continued high and volatile gold price, together with the global economy witnessing inflationary pressures and a tightening of consumer wallets, dampened demand.

Gold prices averaged $897.40 an ounce in the quarter, up 34 per cent y-o-y. On a sequential basis, the average price was down, as the precious metal hit a record $1,032.70 in March. The historical volatility of gold, or the rate at which a price moves up and down, was 25 per cent during the quarter, up from 14 per cent as compared to the previous year.

In value terms, the demand rose nine per cent to $21.2 billion in the quarter, an all-time high.

Investment demand was also softer than year-earlier levels as some investors booked profits. The four per cent decline in tonnage relative to year-earlier levels represented a nine per cent decline in net retail investment. This was partly offset by a change from small net disinvestment to small net investment in exchange traded funds (ETFs) and similar products. In July, the total gold held in ETFs crossed 1,000 tonnes for the first time.

Countries that reported strong growth in net retail investment inflows include China, the US and Vietnam. Higher inflation and falling stock markets were a common theme in the three countries.

In the second quarter, investment demand more than doubled in China from 4.3 to 9.8 tonnes. In the US, it rose from 1.2 tonnes to 11.3 tonnes.

Gold supply grew by only one per cent in tonnage terms in the quarter. A 13 per cent increase in scrap due to the higher gold price was offset by a four per cent reduction in mine output. Lower central bank sales also affected supply.

The report said supply has remained constrained for some years now. While the pace of net de-hedging that contributed to tight supply in recent years was not sustainable for much longer, net central bank sales appear to be slowing. Unless a substantial new seller emerges, net sales under the Central Bank Gold Agreement in the current CBGA year, which ends on September 26, could be the lowest since the first Agreement was signed in 1999.

Jewellery demand is likely to remain subdued in most countries. Nevertheless, despite the adverse impact of rising food and energy prices on household budgets, the potential for stronger jewellery demand remains, once prices stabilise sufficiently to regenerate consumer purchasing in countries sensitive to the price volatility.

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