W W W. G O L D . O R

w w w. g o l d . o r g

Gold Demand Trends FEBRUARY 2008

Full year and fourth quarter 2007

Table of contents CLICK ON SUBJECT OR PAGE NUMBER TO NAVIGATE TO PAGE

Executive summary

1

EXECUTIVE SUMMARY

Outlook

2

• At 3,547 tonnes, identifiable gold demand in 2007 was 4% higher than in 2006 in tonnage

Demand

4

terms. This was equivalent to a rise of one fifth in dollar terms bringing demand to $79.2bn, a fourth successive annual record. However, after three quarters of strong growth, rising and volatile prices brought a change of pattern in the fourth quarter when identifiable

Overall trends

4

Jewellery

6

Jewellery demand & record gold prices

7

Industrial & dental

8

Investment

8

demand fell by 17% in tonnage terms from year-earlier levels. In dollar terms Q4 identifiable demand was $21.3bn, 7% up on Q4 2006, and just surpassed Q3 2007 to set a new quarterly record. • At 2,426 tonnes, jewellery demand was 6% higher in 2007 than in 2006 in tonnage terms and 22% higher in dollar terms, making a new dollar record at $54bn. However after a strong start to the year, demand in many countries was hit by the price rise towards the end of the year so that Q4 demand was 17% below year-earlier levels in tonnage terms (up 6% in dollar terms). Continued volatility at record high prices is posing challenges to the jewellery industry.

Supply

11

Consumer demand in individual countries

12

• 2007 was a year of changing patterns for investment. In the first half year overall investment was weak; identifiable investment was 22% lower than one year earlier while the statistically residual “inferred investment” (see box on page 3) was substantially negative. In Q3, while inferred investment was close to zero, identifiable investment soared as a result of record quarterly inflows into gold Exchange Traded Funds (ETF). In Q4 identifiable investment was more subdued, as retail investors took profits and ETF inflows steadied, but inferred investment became strongly positive. In dollar terms total net gold investment in Q4 reached just over $8bn – a quarterly record for the current bull market which started in 2001. • The contrasting trends in investment meant that for the year as a whole identifiable investment was close to 2006 levels in tonnage terms (but 15% higher in value terms) while there was net disinvestment, estimated at close to 80 tonnes, in the inferred investment category.

India

13

Greater China

14

Other East Asia

15

Middle East & Turkey

16

USA

18

Europe

18

Total investment for the year was therefore lower than in the record year of 2006. • Industrial demand rose 2% in 2007 in tonnage terms setting a new annual record at 465 tonnes. This was equivalent to a 17% increase in dollar terms. • Gold supply remained tight throughout the year, falling 3% in tonnage terms. Supply from

Historical data

20

Notes & definitions

21

the official sector rose due to higher sales within the terms of the Central Bank Gold Agreement, but this was offset by increased dehedging by gold mining companies and by lower scrap supplies. Embargo: not for release before Wednesday, February 13th 2008, 0700 hours New York time

FEBRUARY 2008

1

© 2008 World Gold Council and GFMS Ltd

Gold Demand Trends • In India gold demand was 7% higher than in 2006 (tonnage

• The Middle East showed a similar, but far less extreme,

terms). However, after a strong start to the year it declined

pattern to India with a strong start to the year but with demand

sharply as prices rose from September so that in Q4 demand

fading in Q4 due to the rising and volatile price. For the year as

was 64% lower than in Q4 2006. The immense influence of price

a whole demand in Saudi Arabia rose by 15%, that in the UAE

volatility on Indian demand is illustrated by the fact that while

by 7%, just making a new annual record, and that in Other Gulf

offtake for 2007 as a whole equalled the previous record estab-

countries combined by 4%. Egypt was the exception in Q4 with

lished in 1998 (a year when offtake was boosted by the impact of

demand still rising on the back of economic recovery resulting in

import liberalisation at the end of 1997) offtake in Q4 was the

12% growth for the year as a whole.

lowest fourth quarter since the early 1990s. • Turkey registered new records for both consumer demand in • In contrast to India, demand in China continued to grow in Q4

total (up 11% to 249 tonnes) and for net retail investment (up 2%

despite the rapidly rising price. For the year as a whole it

to 61 tonnes) while jewellery demand was second only to 2005.

amounted to 326 tonnes, up 26% on 2006. Jewellery demand

The appreciation of the Turkish lira offset much of the rise in the

reached 302 tonnes for the full year enabling China to overtake

gold price during the year so that jewellery demand remained

the USA to become the world’s second largest gold jewellery

strong in Q4.

market in volume terms. Demand in Hong Kong rose 15% in • A slowing economy, a poor retail environment and the high gold

2007 and that in Taiwan by 3%.

price hurt jewellery demand in the USA which fell 14% from 2006 levels. The decline intensified in Q4 due to the worsening

• Japanese investors remained net profit takers in 2007,

economic situation and poor retail sales in the holiday period.

reducing their holdings by 56 tonnes in order to take advantage of the sharp rise in the gold price of recent years. Jewellery demand fell 2%. Consumer demand in Vietnam was 15% lower

• Jewellery demand also continued its ongoing decline in Italy

than the exceptionally strong level achieved in 2006; that in

(down 9% year on year) and the UK (down 8%). In contrast,

Indonesia rose 4%.

strong growth continued in Russia with jewellery demand rising 11% to set a further annual record. Growth remained vibrant throughout the year with demand in Q4 nearly 25% higher than a year earlier – making Russia the fastest growing country for the quarter.

Source: GFMS Ltd, WGC

FEBRUARY 2008

Source: GFMS Ltd, WGC

2

Gold Demand Trends Outlook Following a fourth quarter which brought a record (for recent years) level of investment into gold in dollar terms, investor interest has remained high in the first weeks of 2008. This is likely to continue at least as long as the current financial and economic worries persist. The more speculative elements of investment are likely to subside once economic confidence returns. We believe, however, that there remains plenty of scope for further “buy and hold” investment, particularly from those sectors of the investment market which have so far made only tentative forays into gold (and other commodity) investing. The combination of record prices and high volatility is a deterrent to jewellery buying by both the trade and consumers. This form of demand will not therefore be strong in the first quarter of 2008 and will remain under pressure while prices remain volatile. Sentiment towards gold remains positive, however, and demand will return once prices stabilise. If it stabilises at higher prices than in 2007 there will inevitably be some attrition in jewellery demand due to gold becoming less affordable, particularly to those with more limited budgets, but past experience suggests that this could be limited. See the box on page 7 for further commentary.

The figures used in this report The supply and demand data in this report are based on

For global or regional value figures, the US dollar is used

tonnage figures compiled independently for the WGC by

as the measure. Apart from the fact that it is the world’s

GFMS Ltd. Any information from alternative sources is clearly

major currency, most of gold’s main markets are in countries

indicated. Value figures for demand and supply are calculated

whose currencies are either linked, tightly or loosely, to the

by the WGC from the GFMS data.

dollar or where exchange rates against the dollar do not normally change greatly from year to year, other than in line

We are sometimes asked why we comment on value figures

with inflation differentials. The use of the US dollar is thus

for demand as well as tonnage instead of just relying on

appropriate.

tonnage figures, as is more common in most commodity markets. There are two main reasons for this. First, over 85%

Not all investment flows can be measured and those that

of demand is discretionary spending either on a consumer

cannot be are proxied by the statistical residual from the

product (jewellery) or as an investment. In both these markets

supply and demand balance, known as “inferred investment”;

it is customary to comment on value figures. Second, since

this contains stock movements and other elements but it is

demand (as statistically defined) has to equal supply, changes

usually dominated by those investment flows not susceptible

in demand can simply reflect growth or contraction in the

to statistical capture.

supply of gold to the market and are thus a poor guide to consumers’ or investors’ appetite for gold. Thus commenting on both value and on tonnage provides a more holistic picture.

FEBRUARY 2008

3

Gold Demand Trends DEMAND Table 1: Identifiable gold demand1 (tonnes)

2005

2006

% ch 2007 vs 2006

20072

Q4'06

Q1'07

Q2'07

Q3'07

Q4'072

% ch Q4'07 vs Q4'06

2,707.2

2,283.0

2,425.7

6

708.6

565.2

671.0

603.8

585.7

-17

Industrial & dental Electronics Other Industrial Dentistry

430.6 280.4 87.8 62.4

458.0 306.1 91.2 60.7

465.5 314.6 93.2 57.7

2 3 2 -5

115.7 76.2 24.3 15.2

115.9 77.2 23.9 14.7

119.0 80.2 24.3 14.5

117.7 79.8 23.7 14.2

112.9 77.4 21.2 14.2

-2 2 -13 -6

Identifiable Investment Net retail investment Bar Hoarding Official Coin Medals/Imitation Coin Other identified retail invest.3 ETFs & similar products 4

593.6 385.5 263.7 110.9 37.0 -26.1 208.1

659.0 398.9 232.3 129.1 59.4 -21.9 260.2

656.1 405.3 243.3 125.4 72.3 -35.8 250.8

0 2 5 -3 22 … -4

189.2 110.0 74.9 22.9 20.9 -8.7 79.1

144.6 108.2 65.3 34.2 20.2 -11.5 36.4

124.9 127.4 79.5 33.9 26.0 -11.9 -2.6

242.2 102.7 59.4 34.4 17.6 -8.7 139.5

144.5 67.0 39.1 22.9 8.6 -3.7 77.5

-24 -39 -48 0 -59 … -2

3,731.4 444.45

3,400.0 603.77

3,547.3 695.39

4 15

1,013.4 613.21

825.7 649.82

915.0 666.84

963.6 680.13

843.0 786.25

-17 28

Jewellery consumption

Total identifiable demand London pm fix, $/oz

Source: GFMS Ltd. 1. Identifiable end-use consumption excluding central banks. 2. Provisional . 3. “Other retail” excludes bar and primary coin offtake; it represents mainly activity in North America and Western Europe. 4. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold Bullion Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, Zürcher Kantonalbank Gold ETF, Istanbul Gold ETF, ETF Securities, Central Fund of Canada and Central Gold Trust.

Overall trends Identifiable gold demand was 3,547.3 tonnes in 2007, 4% higher

rush into gold and this pushed the price sharply higher. Jewellery

than in 2006. With the annual average gold price having risen 15%

buyers retreated in the face of rapidly rising prices.

in dollar terms, this was equivalent to a new annual record in dollar terms at $79.2bn – one fifth higher than the level of spending in

Thus in Q4 the demand picture was very different from the

2006. Jewellery demand was 6% higher in 2007 in tonnage terms

earlier part of the year. The impact of the rising and volatile price

but 22% higher in dollar terms; industrial demand was 2% higher in

on the jewellery market, and also on some retail investment

tonnage terms (making a new annual record) and 17% higher in dol-

markets, was such that identifiable demand was 17% below Q4

lar terms. The picture of identifiable investment was more mixed;

2006 levels in tonnage terms and just 7% higher in dollar terms

overall tonnage was essentially unchanged from 2006 but this trans-

(although this rise was sufficient to set a new quarterly dollar

lated into a 15% increase in value terms. Spending on all these three

record of $21.3bn). Again the comparison is exaggerated by the

categories set new dollar records. Identifiable gold demand

2006 demand pattern, although this time it is worsened, since

excludes those elements of demand which cannot be directly meas-

Q4 2006 was an exceptionally strong quarter. Interestingly,

ured as well as a statistical residual – this is considered as “inferred

identifiable investment as a whole fell even more sharply from

investment” since the main missing element consists of institutional

year-earlier levels than did jewellery – 24% down on a tonnage

investment flows which cannot be statistically captured.

basis and 2% down in dollar terms. The reason for this is that identifiable investment consists either of retail investment

The year can be divided into two parts. For the first eight months

categories where investors tend to buy when the price is low and

gold prices were relatively stable (see chart 3) and investor interest,

react to a sharp rise in the price by holding back or taking

outside one or two important retail markets, was limited. This price

profits, or to categories, including gold Exchange Traded Funds,

background was supportive to jewellery demand which, during the

where offtake was little changed from one year earlier. The real

first three quarters, was 17% higher than a year earlier, albeit the

surge in investment demand in Q4 came in those forms which

comparison is exaggerated since jewellery demand in the first part

cannot be directly measured and therefore are shown in the

of 2006 was disrupted by price volatility. All changed after the finan-

“inferred investment” category (see section on Investment below

cial crisis struck in August. From September investors started to

for more details).

FEBRUARY 2008

4

Gold Demand Trends Table 2: Identifiable gold demand1 ($m)

2005

2006

% ch 2007 vs 2006

20072

Q4'06

Q1'07

Q2'07

Q3'07

Q4'072

% ch Q4'07 vs Q4'06

38,670

44,475

54,203

22

13,970

11,808

14,387

13,203

14,805

6

Industrial & dental Electronics Other Industrial Dentistry

6,153 4,010 1,251 892

8,902 5,949 1,773 1,179

10,400 7,034 2,076 1,290

17 18 17 9

2,281 1,502 478 300

2,421 1,613 500 308

2,552 1,720 521 311

2,573 1,745 518 310

2,853 1,957 537 360

25 30 12 20

Identifiable Investment Net retail investment Bar Hoarding Official Coin Medals/Imitation Coin Other identified retail invest.3 ETFs & similar products 4

8,485 5,458 3,720 1,571 528 -360 3,027

12,710 7,767 4,532 2,510 1,158 -433 4,943

14,647 8,931 5,357 2,773 1,580 -779 5,715

15 15 18 10 36 … 16

3,730 2,169 1,476 452 412 -171 1,560

3,021 2,261 1,365 714 422 -239 760

2,678 2,732 1,704 726 557 -255 -55

5,296 2,245 1,299 753 385 -191 3,050

3,653 1,693 989 580 217 -93 1,960

-2 -22 -33 28 -47 … 26

53,308

66,086

79,249

20

19,980

17,250

19,617

21,072

21,311

7

Jewellery consumption

Total identifiable demand

Source: WGC calculations based on data from GFMS Ltd. 1. Identifiable end-use consumption excluding central banks. This table was formerly called "End-use gold demand". 2. Provisional . 3. “Other retail” excludes bar and primary coin offtake; it represents mainly activity in North America and Western Europe. 4. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold Bullion Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, ZKB Gold ETF, GOLDIST,ETF Securities, Central Fund of Canada and Central Gold Trust.

Source: Global Insight, WGC

FEBRUARY 2008

5

Gold Demand Trends Industrial demand remained fairly steady throughout the year. In Q4 demand was just 2% lower than year-earlier levels in tonnage terms and 25% higher in dollar terms.

Source: GFMS Ltd, WGC

Undoubtedly movements in the gold price were the most important factor in determining the level of jewellery buying. As this report has Source: GFMS Ltd, WGC

frequently pointed out, while the price level certainly has an influence on the quantity of gold jewellery that is bought, in many countries the

Chart 4 puts trends in 2007 into the longer-term context. Overall

presence or absence of price volatility, or short-term price move-

supply to the market remained heavily constrained in 2007, falling

ments, are more immediately influential factors. In Asia and the

by 4% from an already tight 2006 level. Overall demand in tonnage

Middle East, which together account for around two thirds of

terms therefore remained constrained as well, since gold can not be

jewellery demand, gold jewellery is typically sold by weight at a price

purchased if it is not available in the market. Over recent years

that varies from day to day in line with the international gold price and

investment has taken a growing share of available gold. With indus-

with a relatively small mark-up over the international price. In these

trial demand showing slow but generally steady growth, it is jew-

circumstances consumers will hold back from buying when the price

ellery demand that has been squeezed in tonnage terms in recent

is volatile lest they find later that they could have bought at a more

years. However, the underlying strength of potential jewellery

advantageous price had they waited a while. Buyers return when the

demand has been so strong that this has only been achieved by the

price appears to be more stable.

sharp rise in the price that has occurred. This has resulted in the strong rise in the value of overall gold demand which has more than

Chart 5 shows jewellery demand (in tonnes) by quarter plotted

doubled since the beginning of the decade.

against the gold price. Demand is seasonal and subject to other variations but the impact of the sharp rise in the price that occurred

Jewellery

between September 2005 and May 2006 can be seen; the rise that

In tonnage terms, overall jewellery demand in 2007 was 6% higher

started in September 2007 is having a similar effect. In the first

than in 2006; however, in Q4 2007 it was 17% lower than in Q4 2006.

months of 2007 prices were relatively stable and, importantly, below

Neither picture, however, was uniform across all countries. The out-

the peaks reached in 2006 (see chart 2) providing what appeared to

turn varied according to economic circumstances, the differing ways

be an opportune period for purchase. Hence the strength of demand

in which demand in different countries reacts to price volatility and,

during the first eight months of the year until it was ended by the

in a few cases, to exchange rate movements.

price rise.

FEBRUARY 2008

6

Gold Demand Trends India is undoubtedly the country most affected by price volatility and

Most of gold jewellery’s main markets have enjoyed good economic

the 40% year-on-year increase (tonnage terms) recorded in the first

growth and rising consumer purchasing power which has been sup-

three quarters taken together turned into a 67% fall for the fourth

portive to jewellery demand. This is true of China and Hong Kong,

quarter. The Middle East is also affected by price volatility although

India, Vietnam, Turkey and much of the Middle East. Russia, where

its impact is less dramatic; in Saudi Arabia and the Gulf a 16%

demand is soaring, is a particular example. Egypt is benefiting from

increase in the first three quarters became a 9% fall in the fourth.

economic recovery. The US is currently an exception while Italy has

Consumers in China, in contrast, appear less affected – a 26%

faced adverse circumstances for some time and the UK is faltering.

increase in the first three quarters was only dampened to an 18%

Finally the Turkish lira has appreciated substantially against the US

increase in the fourth.

dollar so that it was only right at the end of the year that the gold price in lira exceeded peaks reached in 2006. This enabled jewellery demand to remain buoyant in Q4.

In North America and Europe, where retail prices do not vary from day to day, the price rise has had more of an effect on demand than price volatility, although distributors and retailers have had to adjust inventory levels and trade prices.

Jewellery demand and record gold prices The rising gold price may please investors but for gold

of good economic growth. Both years had relatively

jewellers times are difficult. With prices having risen more

stable gold prices for the first eight months followed by a

than three-fold since the beginning of the decade, includ-

sharp rise. Between July 2005 and January 2006 prices

ing a $220-dollar leap in the last six months alone, both

rose by 30% (and went on to rise even further before sub-

trade and consumers are hesitant to commit to purchas-

siding); between July 2007 and January 2008 they rose

ing gold jewellery while the price position remains both

by 33% (monthly averages). Demand was badly hit

high and unstable.

between Q4 2005 and Q2 2006 but subsequently recovered. Jewellery offtake in 2005, with an average price of

We have consistently stated that a steady and gradual

$444/oz, was 2,707 tonnes. Jewellery offtake in 2007,

rise in price is no deterrent to jewellery demand since it

with an average price of $695/oz ($251 or 56% higher)

enhances the investment element of purchase. When

was 2,425 tonnes. Despite the substantial price rise

incomes are rising in major markets – and, the current sit-

demand was just 282 tonnes, or a little over 10%, less.

uation in the US apart, most of gold’s main markets have It is inevitable that jewellery demand (and indeed identifi-

benefited and are benefiting from strong economic

able demand as a whole) will be low in the first part of

growth – rising purchasing power can overcome the

2008 and while prices remain high and volatile. Assuming

deterrent effect of rising prices to a not inconsiderable

prices stabilise at some point, buyers will adjust to the

extent. It is also true that the jewellery industry has learnt

new price and demand will return. If prices were to sta-

a great deal about its customer base in recent years –

bilise at present day levels there would be a noticeable

both product offering and marketing have improved.

decline in demand from last year’s outturn, just as there

However, the challenges currently faced are not trivial.

was between 2005 and 2007. All reports speak of senti-

Price volatility is a particular problem both for its effect on

ment towards gold remaining very positive in key markets

customers in Asia and the Middle East and for the man-

so it is a reasonable assumption that the decline would

agement and financing problems it poses. Not all of the

be limited (although any noticeable decline will still

“missed” buying during periods of price volatility is lost

inevitably pose problems for the jewellery industry). The

as some returns when prices are more stable, but some

real danger to jewellery demand would only come from a

buyers will turn to other products.

period of prolonged volatility, especially at record high

There are many parallels between 2007 and 2005 and the

price levels, which may not allow consumers and trade

experience of the two years is relevant. Both were years

buyers time to adapt to new levels.

FEBRUARY 2008

7

Gold Demand Trends Industrial and dental

demand in the fourth quarter slid 13% year-on-year to 21.2 tonnes.

Demand for gold for used in industrial and dental applications

The quarterly decline was largely attributable to the Indian market,

reached a new record at 465.5 tonnes in 2007, a rise of 2% on 2006.

which suffered a significant fall in the production of jari (gold thread

Fourth quarter demand was lower than it had been the previous

used particularly in wedding saris) in response to volatility in the

year however, as a small rise in demand in the electronics sector

gold price. In contrast, Italy and China saw a solid increase in this

was more than offset by declines in both the dental and ‘other

sector in a continuation of the trend of increased Gold Potassium

industrial’ categories. Demand in Q4 slipped 2% to 112.9 tonnes.

Cyanide (GPC) production. As well as being used in industrial applications GPC is used in the electro-forming of jewellery, a process that reduces the overall weight of jewellery items. 2007 witnessed a further decline in demand from the dental sector, taking annual demand to a 20-year low of 57.7 tonnes. The longterm decline in dental demand is being driven primarily by the substitution of more affordable alternatives to gold, such as base metals and ceramics. Surging gold prices throughout this year have therefore only served to exacerbate this trend.

Investment 2007 started as a mixed year for gold investment with strong rises in retail investment coinciding with relatively small inflows into Exchange Traded Funds and substantial disinvestment from the “inferred investment” category. (“Inferred investment”, which is calculated as a statistical residual, includes the majority, although not all, of short-term speculative flows and is by nature an erratic series.) Total (net) investment for the first half year, adding all these elements together, amounted to just 32.5 tonnes, or $663m. The approach, and then onset, of the financial markets crisis in the third Source: GFMS Ltd

quarter changed this by sharply reviving interest among many

The electronics sector was the only industrial segment to experience a rise in demand in both the fourth quarter and the year as a whole, although the pace of growth was notably slower than it has been in recent years. Annual demand amounted to 314.6 tonnes, 3% higher than 2006. Demand for the fourth quarter meanwhile, was up 2% year-on-year at 77.4 tonnes. Demand was driven by rising sales of semiconductors, primarily due to rising demand for products such as flat panel displays and MP3 players, which have a high semiconductor content. Although record gold prices do not seem to have taken a considerable toll on this sector as yet, further price rises are likely to encourage equipment manufacturers to seek technology solutions that reduce their dependence on gold. Should the current climate of economic uncertainty persist through 2008 then a further slowdown across the sector is likely. The ‘other industrial’ category, which encompasses various industrial applications and decorative uses of gold, tends to be much more sensitive to changes in the gold price and therefore the record prices seen in the fourth quarter resulted in a decline in demand. 2007 annual demand inched up by 2% to 93.2 tonnes, while

FEBRUARY 2008

Source: GFMS Ltd

8

Gold Demand Trends Table 3: Investment demand (tonnes except where specified)

2005

2006

20071

% ch 2007 vs 2006

Q4'06

Q1'07

Q2'07

Q3'07

Q4'071

% ch Q4'07 vs Q4'06

Identifiable Investment Net retail investment Bar Hoarding Official Coin Medals/Imitation Coin Other identified retail invest.2 ETFs & similar products 3

593.6 385.5 263.7 110.9 37.0 -26.1 208.1

659.0 398.9 232.3 129.1 59.4 -21.9 260.2

656.1 405.3 243.3 125.4 72.3 -35.8 250.8

0 2 5 -3 22 … -4

189.2 110.0 74.9 22.9 20.9 -8.7 79.1

144.6 108.2 65.3 34.2 20.2 -11.5 36.4

124.9 127.4 79.5 33.9 26.0 -11.9 -2.6

242.2 102.7 59.4 34.4 17.6 -8.7 139.5

144.5 67.0 39.1 22.9 8.6 -3.7 77.5

-24 -39 -48 0 -59 … -2

"Inferred investment"4

280.5

182.3

-78.6

…

3.7

-84.4

-152.6

-16.2

174.6

…

"Total" investment "Total" investment, $m

874.1 12,959

841.3 16,370

577.5 13,671

-31 -16

192.8 3,802

60.2 1,257

-27.7 -594

225.9 4,941

319.1 8,067

65 112

Source: GFMS Ltd. 1. Provisional . 2. “Other retail” excludes bar and primary coin offtake; it represents mainly activity in North America and Western Europe. 3. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold Bullion Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, Zürcher Kantonalbank Gold ETF, Istanbul Gold ETF, ETF Securities, Central Fund of Canada and Central Gold Trust. 4. See notes to table 4.

investors. In Q3 this was mainly apparent in Exchange Traded

For 2007 in total, net retail investment (defined to exclude invest-

Funds (ETFs) and similar products which enjoyed quarterly-record

ment via Exchange Traded Funds which is discussed separately)

inflows in both tonnage and value terms (139.5 tonnes and

amounted to 405.3 tonnes, 2% higher than in 2006 (and 14%

$3.1bn). With “inferred investment” only mildly negative over the

higher in dollar terms). Four countries account for the bulk of this

quarter as a whole and retail investment holding up, total invest-

category and these, together with China where the process of

ment for the quarter reached 225.9 tonnes or $4.9bn.

de-regulation is finally lifting the barriers to such investment, are shown in chart 8. Overall net retail investment has been on an

Although the rise in the price in Q4 prompted some profit taking

upward trend in recent years driven by the growth in India, Turkey

among retail investors in bars and coins, it served to intensify

and Vietnam. Expansion in these three countries has been more

interest among other investors. Net inflows into Exchange Traded

than sufficient to counter the impact of net Japanese retail invest-

Funds continued at a high level, although they did not reach the

ment swinging from positive to negative from 2006 as investors

record levels achieved in Q3. However, “inferred investment” flows

started to take profits.

turned sharply positive with net inflows of around 175 tonnes. Part of the net inflows in Q4 were associated with a build up of futures

In 2007 growth was fastest in medals and imitation coins (up 22%

positions on the COMEX, CBOT and TOCOM exchanges; there

due to rapid growth in India which accounts for the bulk of this

was also a noticeable increase in allocated gold positions,

category). Bar hoarding rose by 5%, with official coins falling by

presumably reflecting a desire for additional security in the climate

3% as demand in the USA (not shown in the chart) fell back from

of financial uncertainty.

2006 levels which had been boosted by the introduction of the Buffalo coin.

Total investment in Q4 is estimated at 319.1 tonnes. This is equivalent to a substantial $8.1bn - the largest quarterly net inflow

Growth in 2007 was concentrated into the first half of the year. In

of investment into gold since the current bull market started.

Q4 net retail investment, at 67.0 tonnes, was 39% lower than in Q4 2006 as holders took profits. The fall was concentrated in

For the year as a whole total gold investment amounted to 577.5

medals and imitation coins and in bar hoarding and reflected

tonnes; due to the negative “inferred investment” figures in the first

lower net investment in India and Vietnam along with an intensifi-

part of the year, this was 31% lower than the 841.3 tonnes

cation of selling back in Japan. Investment in official coins was

recorded for 2006 and 16% lower in dollar terms. As noted earlier,

unchanged from a year earlier.

identifiable investment was almost unchanged in tonnage terms from 2006 levels, and 15% higher in dollar terms.

FEBRUARY 2008

9

Gold Demand Trends

Source: Bloomberg; individual companies

exchanges in 11 countries. They are therefore a rapidly maturing

Source: GFMS

product, increasingly familiar to a range of investors, although Investment in Exchange Traded Funds (ETFs) and similar

there is still scope for substantial growth. There has been consid-

products in 2007 amounted to 250.8 tonnes, 4% lower than in

erable speculation by market commentators on the possible move

2006, representing a yearly rise in value terms of 16% or $773m.

by pension funds towards commodities and gold. While precise

(The statistics in this issue of GDT exclude the newest fund –

information is difficult to come by it appears that actual investment

Xetra-Gold – which was launched on the Xetra trading platform of

to date by such entities has been limited and that it is often chan-

the Deutsche Börse, and also on the Frankfurt Stock Exchange, on

nelled via specialist funds or through exposure to commodity

December 14; this will be added in next quarter. At the beginning

indexes. There have, however, been occasional instances of

of February the fund held 3.5 tonnes.)

recent investment in ETFs by such bodies.

At the end of 2007 holdings in gold Exchange Traded Funds

In general ETF investors have been long-term holders. However

proper (excluding Xetra-Gold) amounted to 869 tonnes, worth

there is a certain amount of more speculative activity in the

over $23bn; this had risen to 897 tonnes (including Xetra-Gold) by

streetTRACKS fund (GLD). This can be seen from chart 9 which

the end of January 2008.

shows the evolution of holdings in “GLD” and other ETFs combined since the end of 2005. In percentage terms, overall

Gold ETFs were first brought to the market in 2003 with the largest

growth in the two categories has been broadly similar over the

fund, streetTRACKS Gold Shares (GLD) launched in November

period shown, each growing by over 140%, but month to month

2004. These and additional similar products are now listed on

dips and recoveries are more evident in GLD than the other funds.

FEBRUARY 2008

10

Gold Demand Trends SUPPLY Table 4: Gold supply and demand (WGC presentation) Note: jewellery data in this table refer to fabrication not consumption and quarterly data differ from the data in Tables 1 and 2.

2005

2006

% ch 2007 vs 2006

20071

Q4'06

Q1'07

Q2'07

Q3'07

Q4'071

% ch Q4'07 vs Q4'06

Supply 2,550

2,481

2,447

-1

663

587

611

631

618

-7

-86

-373

-400

-32

-137

-182

-31

-50

…

2,464

2,108

2,047

… -3

631

450

429

601

568

-10

662

367

485

32

59

73

145

169

98

65

886

1,107

937

-15

242

237

219

204

277

14

4,012

3,582

3,469

-3

933

760

792

973

943

1

2,707

2,283

2,426

6

624

584

701

630

511

431

458

465

2

116

116

119

118

113

-2

3,138

2,741

2,891

5

740

700

820

747

624

-16

Bar & coin retail investment3

412

421

441

5

119

120

139

111

71

-40

Other retail investment

-26

-22

-36

-9

-11

-12

-9

-4

…

ETFs & similar

208

260

251

… -4

79

36

-3

139

78

-2

Total Demand

3,731

3,400

3,547

4

929

844

945

989

769

-17

"Inferred investment"4

280

182

-79

…

4

-84

-153

-16

175

London PM fix (US$/oz)

444.45

603.77

695.39

613.21

649.82

666.84

680.13

786.25

Mine production Net producer hedging Total mine supply Official sector sales

2

Old gold scrap Total Supply Demand Fabrication Jewellery Industrial & dental Sub-total above fabrication

15

-18

… 28

Source: GFMS Ltd. Data in this table are consistent with those published by GFMS but adapted to the WGC’s presentation. The “inferred investment” figure differs from the “implied net (dis)investment” figure in GFMS’ supply and demand table as it excludes “ETFs and similar” and “other retail investment”. 1. Provisional. 2. Excluding any delta hedging of central bank options. 3. Equal to the sum of the first three rows in Table 1. 4. This is the residual from combining all the other data in the table. It includes institutional investment other than ETFs & similar, stock movements and other elements as well as any residual error. In some previous editions of GDT it was referred to as the “balance”.

Supply continued to tighten in 2007, falling 3% below 2006 levels to

seen higher levels of selling under the Central Bank Gold

3,469 tonnes. Mine output was little changed for the year. An

Agreement than 2006 primarily as Switzerland started a new sales

increase in de-hedging, which rose to 400 tonnes from 373 tonnes,

programme, disposing of 145 tonnes during the year, and as

and a 15% fall in scrap supply were largely, but not entirely offset,

Spain, which had been an occasional seller in earlier years,

by a higher level of central bank sales.

undertook a more vigorous disposal programme between March and July. Outside the CBGA there was on balance a small amount

Total supply in Q4 was just one percent higher than in Q4 2006 but

of net buying during 2007 with Qatar, Belarus and Kazakhstan

this conceals some sharper movements in the individual compo-

among the countries adding to their gold stocks.

nents. Mine output was 7% lower primarily due to falls in the US, Indonesia and South Africa (the last mainly due to closures related

Scrap supply in Q4 was 14% higher than a year earlier as a result of

to the country’s efforts to improve mine safety).

the price rise. However the increase was lower than might be expected and levels remained below those experienced in the first

De-hedging is provisionally estimated to have been around 50

half of 2006. A general belief that the price could rise further appears

tonnes in the quarter, more substantial than a year earlier but well

to have been the main reason for the relatively limited quantity that

below the much higher levels recorded in the first half of the year.

came to the market; in addition much of the “loose” gold was probably already shaken out in 2006.

Net official selling in Q4 amounted to 98 tonnes, nearly two thirds higher than the very low figure recorded in Q4 2006. 2007 has

FEBRUARY 2008

11

Gold Demand Trends CONSUMER DEMAND TRENDS IN INDIVIDUAL COUNTRIES 1

Table 5: Consumer demand trends in selected countries: 2006 and 2007 (tonnes)

Jewellery India Greater China China Hong Kong Taiwan Japan Indonesia Vietnam Middle East Saudi Arabia Egypt UAE Other Gulf Turkey Russia2 USA Italy2 UK2 Europe3 Total above Other & stk ch World Total

2006 Net retail invest.

Total

Jewellery

20071 Net retail invest.

Total

% change 2007 vs 2006 Net retail Jewellery invest. Total

526.2 275.0 244.7 13.1 17.2 32.8 57.7 22.1 296.1 104.3 60.0 92.4 39.5 165.3 69.5 306.1

195.7 19.3 14.9 0.4 4.0 -45.7 -1.0 69.5 19.2 8.0 0.6 8.2 2.6 59.9 … 32.4

721.9 294.3 259.6 13.5 21.2 -12.9 56.6 91.6 315.4 112.3 60.5 100.5 42.1 225.2 69.5 338.5

558.2 331.0 302.2 14.4 14.4 32.2 58.3 21.6 328.1 120.2 67.3 99.8 40.8 188.1 77.0 262.9

215.4 32.3 23.9 1.0 7.4 -56.3 0.5 56.1 20.4 9.2 0.7 7.5 2.9 61.1 … 15.2

773.6 363.3 326.1 15.5 21.8 -24.1 58.7 77.7 348.4 129.4 68.0 107.3 43.7 249.3 77.0 278.1

6 20 23 10 -16 -2 1 -2 11 15 12 8 3 14 11 -14

10 68 60 178 85 … … -19 6 15 29 -8 14 2 … -53

7 23 26 15 3 … 4 -15 10 15 12 7 4 11 11 -18

64.8 52.5 … 1,868.1 414.9 2,283.0

… … -12.3 337.0 61.9 398.9

64.8 52.5 -12.3 2,205.1 476.8 2,681.9

58.8 48.6 … 1,964.8 460.9 2,425.7

… … -5.9 338.9 66.4 405.3

58.8 48.6 -5.9 2,303.7 527.3 2,831.0

-9 -8 … 5 11 6

… … … 1 7 2

-9 -8 … 4 11 6

Source: GFMS Ltd. 1. Provisional. 2. Jewellery only. 3 Net retail investment only. Europe excludes Germany

Table 6: Consumer demand trends in individual countries: Q4 2007 (tonnes)

Jewellery India Greater China China Hong Kong Taiwan Japan Indonesia Vietnam Middle East Saudi Arabia Egypt UAE Other Gulf Turkey Russia2 USA Italy2 UK2 Europe3 Total above Other & stk ch World Total

Q4 2006 Net retail invest.

165.4 73.5 65.5 3.7 4.3 8.6 13.7 6.4 71.7 24.6 16.0 21.0 10.1 32.0 20.0 126.4 31.8 27.4

64.7 6.4 5.0 0.2 1.2 -8.8 0.2 20.5 4.4 1.9 0.2 1.6 0.7 8.3

…

-3.4 96.0 14.1 110.0

576.7 131.9 708.6

… 3.7

… …

Total 230.1 79.8 70.5 3.9 5.5 -0.2 13.9 26.9 76.0 26.5 16.2 22.6 10.8 40.3 20.0 130.1 31.8 27.4 -3.4 672.7 146.0 818.6

Jewellery

Q4 20071 Net retail invest.

54.0 84.5 77.3 3.8 3.4 8.0 12.7 5.5 68.2 22.4 17.4 19.3 9.1 38.0 24.9 104.6 28.6 24.7

29.9 9.8 7.5 0.2 2.0 -20.0 0.2 13.3 4.4 1.9 0.2 1.7 0.7 4.6

…

0.9 49.3 17.7 67.0

453.6 132.1 585.7

… 6.1

… …

Total

% change Q4 2007 vs Q4 2006 Net retail Jewellery invest. Total

83.9 94.3 84.8 4.0 5.4 -12.0 12.8 18.8 72.6 24.3 17.7 21.0 9.7 42.6 24.9 110.7 28.6 24.7 0.9 502.8 149.8 652.7

-67 15 18 4 -21 -7 -8 -14 -5 -9 9 -8 -10 19 25 -17 -10 -10

-54 53 50 10 74

… -38 -35 1 0 5 8 -9 -44

… 65

-64 18 20 4 -1 … -8 -30 -4 -8 9 -7 -10 6 25 -15 -10 -10

…

… … …

…

-21 0 -17

-49 26 -39

-25 3 -20

Source: GFMS Ltd. 1. Provisional. 2. Jewellery only. 3 Net retail investment only. Europe excludes Germany. 1 Consumer demand is gold bought by individuals – i.e. as jewellery and net retail investment. Unless otherwise specified all data in this section refer to tonnage figures and growth rates are comparisons with the same period of the previous year.

FEBRUARY 2008

12

Gold Demand Trends India In tonnage terms consumer demand for gold in India during 2007 was 7% higher than in 2006. The combination of a robust economy and buoyant stock market helped to fuel purchases of the metal during the first 8-9 months of the year, despite the gold price exceeding the psychologically significant level of Rs9,000/10g in September. In the fourth quarter, however, demand decelerated sharply as the gold price underwent a period of considerable volatility and reached record highs of over Rs10,000/10g. Consumers in India pay more attention to the stability of the gold price than the outright price and may delay purchases until the price has settled down, even if it stabilises at a higher level.

Source: GFMS Ltd, WGC

brands were able to report decent growth in jewellery demand for the quarter. For 2007 as a whole, demand for gold among Indian consumers amounted to 773.6 tonnes, of which jewellery demand accounted for 558.2 tonnes, a rise of 6% on 2006 levels. Net retail investment for the year rose by 10% to 215.4 tonnes. Investment purchases of gold appear to have been more resilient to the price changes during the last quarter, with the festival of Diwali encouraging robust demand for coins and bars, some of which may be Source: Global Insight, WGC

deferred jewellery purchases. Investment demand continues to be encouraged by the rising price of gold, which generated

Total consumer demand amounted to 83.9 tonnes in the fourth

returns of around 16% in Rupee terms during 2007. Indeed, 2007

quarter, a drop of 64% compared with the fourth quarter in 2006

annual investment demand in India was the highest on record

when demand rocketed to 230.1 tonnes on the back of a drop in

having more than doubled since 2004.

the gold price. Perhaps a more sensible comparison to make, therefore, would be with Q4 2005, when demand was 99.3 tonnes

In value terms, Indian gold demand extended the positive trend

as the gold price experienced a similar period of instability.

that has been in place since 2003, rising by 12.4% year-on-year

Jewellery demand for the fourth quarter was 54.0 tonnes (Q4

to a record Rs 714billion (see chart 11). It is also worth noting that

2006: 165.4 tonnes, Q4 2005: 68.8 tonnes) while net retail invest-

total annual demand in 2007 in tonnage terms almost matched

ment measured 29.9 tonnes (Q4 2006: 64.7 tonnes, Q4 2005:

the 1998 peak of 774.4 tonnes, despite an average annual price

30.5 tonnes). Imports during the fourth quarter were comparable

of Rs9225/10g compared with the significantly lower 1998 aver-

with the same period in 2005, reflecting the similarity in price

age of under Rs4,000/10g. In marked contrast to this, Q4 demand

volatility during that period. Within the jewellery sector, branded

was the lowest fourth quarter in tonnage terms since the early

jewellery retailers were better able than the mid-level and smaller

1990s, a point that serves to emphasise the importance of gold

players to weather the price storm and some of the higher-end

price stability to the Indian consumer.

FEBRUARY 2008

13

Gold Demand Trends Given that gold price volatility has escalated during the opening

jewellery purchases ahead of the New Year and Chinese New Year

weeks of 2008, the outlook is for consumer demand, and jew-

celebration and the factors driving purchases of bars and coins also

ellery demand in particular, to remain subdued during the first

spilled over to the jewellery market. Consequently, jewellery

quarter of the coming year. However sentiment among con-

demand amounted to 77.3 tonnes in the final quarter of the year (Q4

sumers remains strong, particularly given rising income levels,

2006: 65.5 tonnes). 18-carat K-gold continued to account for around

and solid buying is likely to emerge on any short term corrections

18% of the total jewellery market during 2007 and while Q4 demand

in the gold price.

declined slightly in volume terms, the higher retail price for K-gold resulted in an increase in value terms over Q4 2006.

Greater China Total consumer demand for gold in Greater China reached 363.3

As China’s economy continued to register exceptional growth and

tonnes in 2007, 23% above 2006 levels. Fourth quarter demand

income levels rose accordingly, consumers in mainland China were

amounted to 94.3 tonnes, a year-on-year increase of 18%. Strong

not deterred by the rise in the price of gold throughout 2007. In fact

growth was seen across the board in the investment sector during

higher gold prices helped to stimulate investment purchases of the

the year, while higher jewellery purchases in Hong Kong and the

metal, especially in light of the riskier stock market environment, as

mainland more than offset a small decline in Taiwanese demand for

consumers were attracted by the strong returns generated by the

jewellery.

metal. Furthermore, China’s high inflation level (4.8% for 2007) served to highlight the appeal of gold as an inflation hedge, while an

Exceptional growth in gold demand in Mainland China during 2007

increased range of investment products on offer from banks and bul-

resulted in the market overtaking the USA to become the second

lion houses aroused added interest. The net result was that invest-

largest retail market for gold jewellery in volume terms behind India.

ment demand for gold at the retail level amounted to 23.9 tonnes for

Demand for jewellery reached 302.2 tonnes for the full year, exceed-

the year as a whole - a rise of 60% compared with the 2006 level of

ing 300 tonnes for the first time since 1997 – a time when high

14.9 tonnes. For the fourth quarter, investment demand increased by

inflation and economic uncertainty prompted large scale buying of

50% (7.5 tonnes compared with 5.0 tonnes in Q4 2006).

24-carat jewellery as a store of wealth. Jewellery demand for the fourth quarter was buoyant despite a marked slowdown around the

Looking ahead, the prospects for gold demand in the mainland dur-

November National Day holiday, which is typically a seasonal low

ing 2008 are mixed. Jewellery demand is likely to come under some

for the jewellery market. However, December saw a revival in

pressure as a result of the rising price, particularly as retail prices in Q4 may not have fully reflected the increase that occurred. However, this is likely to be offset by the impact of the Chinese New Year, which is traditionally an auspicious time for gold purchases. Investment demand, meanwhile, should be spurred on by continued nervousness in global stock markets. The recent launch of China’s first gold futures contracts on the Shanghai Futures Exchange (SFE) holds further positive implications for investor interest in the coming year. Continued economic prosperity in Hong Kong buoyed consumer sentiment and consequently purchases of gold jewellery experienced a modest rise in the fourth quarter, record gold prices notwithstanding. Gold jewellery purchases were encouraged by the auspicious wedding season and forthcoming Chinese New Year, although the ‘Year of the Rat’ is likely to generate less interest than 2007, which was widely considered to be a very auspicious’ Year of the Golden Pig’. For the year as a whole, jewellery offtake reached 14.4 tonnes versus 13.1 tonnes in 2006 while Q4 demand rose 4% to 3.8 tonnes from 3.7 tonnes a year earlier. The expectation is for demand to remain strong as we head into 2008, thanks to the upbeat domestic economic scenario and positive impetus from the mainland.

Source: GFMS Ltd, WGC

FEBRUARY 2008

14

Gold Demand Trends Demand for gold jewellery in Taiwan remained sluggish in Q4 2007,

tend to be younger professionals, either seeking to diversify from

despite a relatively benign domestic economic backdrop and the fact

equity investments or momentum buyers. The sellers are the more

that the fourth quarter is traditionally a time of peak consumption for

traditional older investors who have been long-term holders.

wedding jewellery. Consumers were discouraged by the high and rising gold price and statistics show a considerable drop in the num-

With the gold price remaining high, profit taking seems likely to

ber of newly wed couples during the quarter. As a consequence,

remain the dominant feature of Japanese investment in early 2008.

jewellery offtake declined by 21% to 3.4 tonnes (vs. 4.3 in 2006). The retail investment market for gold had a more uplifting quarter

At 32.2 tonnes, Japanese jewellery buying in 2007 was just 2%

however, as the rising price of gold continued to increase the appeal

below 2006 levels; in Q4 offtake amounted to 8.0 tonnes, 7% down

of the ‘Gold Passbook’ and gold bars as an investment, particularly

on year-earlier levels. Japanese consumers remained cautious, pre-

in light of instability among global stock markets.

ferring to save rather than consume against a background of pension concerns and other economic worries. Yellow gold is staging a

Other East Asia

slow come-back among the fashion conscious with imported

Throughout the year Japanese investors remained net sellers, dis-

brands preferred for perceived better design.

posing of a net 56.3 tonnes in all, compared to net selling of 45.7 tonnes in 2006. Buying occurred, either on dips in the yen gold price

Gold demand in Vietnam was 15% lower, at 77.7 tonnes, in 2007

or through small-scale investment via Gold Accumulation Plans, but

than in 2006, but this was a fall from an exceptionally strong year

this was easily outweighed by heavy profit taking from those who

(see chart 14). After generally steady growth for a number of years

had bought some years previously when the gold price was sub-

investment demand soared in 2006; despite a 19% fall in 2007 it

stantially lower. At an average price in excess of ¥2,600/gm during

remained, at 56.1 tonnes, much higher than in 2005 and earlier

the year, those who bought around the turn of the century when the

years. Jewellery demand in 2007 was 21.6 tonnes, just 2% lower

price was around ¥1,000/gm have made substantial profits.

than in 2006. A 19% rise in local prices during the quarter restrained jewellery consumption in Q4 to 5.5 tonnes, some 14% lower than a year earlier, although this was a noticeable increase in value terms. There

Source: GFMS Ltd, WGC

This scenario continued in the fourth quarter apart from a short period in November when a strengthening of the Japanese currency resulted in a short dip in the yen gold price. As the price rose towards ¥3,000/gm net selling in Q4 rose to 20.0 tonnes. New buyers Source: GFMS Ltd, WGC

FEBRUARY 2008

15

Gold Demand Trends was strong demand for 24-carat gold bridal sets in November and December. Expectations of a price increase resulted in a rush to buy gold bars in November and December; while net retail investment, at 13.3 tonnes, was 35% lower for the quarter than the exceptional offtake in Q4 2006, the price rise meant that the net value purchased was almost the same. The high price appears to have increased profit taking providing plentiful supplied of recycled gold on the local market. Although the gold price reached new records on the local market in the early days of 2008, expectations of further increases are helping to keep both jewellery and investment demand buoyant in the first weeks of 2008. Demand in Indonesia in 2007 was 4% higher than in 2006 at 58.7 tonnes (jewellery up one percent at 58.3 tonnes; net retail investment moving from -1.0 tonne to +0.5 tonne). Jewellery offtake remained generally sluggish, showing limited growth even when the rupiah price was generally stable in the first part of the year, and then declining on a year-on-year basis when the price started to rise in the latter months. In Q4 jewellery demand was down 8% year on year at 12.7 tonnes. The trend towards lower

Source: GFMS Ltd

caratage, as a reaction to the high gold price, continues. Indonesia has always been a price sensitive market so demand is

wise have sold in expectation of higher prices to come. In Saudi

likely to remain restrained in early 2008.

Arabia, UAE and the other Gulf states buying of high-end jewellery remained strong in Q4 even with the price volatility; it was middleand mass-market products which suffered.

Middle East and Turkey Growth in demand in Saudi Arabia was strong for the year as a

Middle East

whole with total consumer demand, at 129.4 tonnes, 15% higher

In the Middle East as a whole gold demand in 2007, at 348.4 tonnes,

than in 2006 – both jewellery and net retail investment showing sim-

was 10% higher than in 2006 (jewellery up 11% at 328.1 tonnes,

ilar rises. In dollar terms offake was $2.9bn, surpassing for the first

retail investment up 6% at 20.4 tonnes). The year was divided into

time the previous value peak of $2.7bn in 1997. A strong economy

two parts. For the first eight months demand was buoyant with Q1-

provided a positive backdrop with consumer purchasing power hav-

Q3 offtake averaging 15% above year-earlier levels. But jewellery

ing recovered from the adverse impact of the 2006 stock market

markets in these regions are sensitive to price volatility (albeit not as

crash. In addition to the direct impact of high oil prices, individual

sensitive as those in India). The sharp price rise in the last months

incomes are also benefiting from major government spending on

of the year duly affected Q4 figures with overall demand 4% below

infrastructure, health and education projects. The gold market is

year-earlier levels (jewellery down 5%, retail investment essentially

also profiting from an improved product offering and growth in trade

unchanged) although this was still equivalent to a 22% rise in dollar

outlets as well as rising promotional spending by the trade.

terms. Egypt was the exception to the rest of the region in the quar-

However, the 23% year-on-year growth in tonnage terms seen in the

ter with demand 9% higher than a year earlier, continuing the

first three quarters was ended by the sharp price rise in the last few

upward trend shown during the year.

months of the year. This affected demand throughout the quarter, including both the Ramadan and Hajj seasons, so that jewellery off-

Throughout the region the impact of the price rise was, neverthe-

take was 9% below Q4 2006 levels and total consumer demand

less, tempered by a general belief that gold prices were likely to rise

down 8%.

further so that buying was not as severely affected as it might have been. One consequence of this is that scrap supplies remained rel-

New annual records were set for both total consumer demand and

atively low with consumers holding onto jewellery they would other-

jewellery demand in the UAE for 2007. At 107.3 tonnes and 99.8

FEBRUARY 2008

16

Gold Demand Trends tonnes respectively, these were 7% and 8% higher than year-earlier levels. A booming economy supported demand although high inflation, particularly in property rents, restrained consumer purchasing power to some extent. In Q4 the price volatility caused a 7% overall fall in demand from year-earlier levels and an 8% decline in jewellery. An additional factor was the changing dates of the annual Dubai shopping festival which is a strong promotional occasion; last year this started towards the end of Q4 2006 and continued into the first quarter of 2007; this year it did not start until after the new year. Dubai continues to be a key trading hub for the region with further growth in imports during the year. In the remaining Gulf states total consumer demand was 4% higher than a year earlier in 2007; Q4 saw a year-on-year fall of 10%. In Egypt, a strong economy, supported by a 14% rise in tourist numbers, healthy foreign investment inflows, good remittances from emigrant workers and a continuation of the financial liberalisation drive, provided a positive background for gold demand in 2007. Coupled with some appreciation of the Egyptian pound against the

Source: GFMS Ltd

dollar and a very strong belief that gold prices were likely to rise, this even enabled demand to hold up in October and November despite

consistently high gold demand with the impact of the rise in the gold

the price rise; it was only in December that the high prices started

price on jewellery buying tempered by rising income levels and

to cause demand to weaken. In Q4 demand was 9% higher than a

sustained promotion. Meanwhile, the memory of the 2001 and

year earlier (jewellery up 9% also) and for the year as a whole

earlier crises, and the recent experience of high inflation, coupled

demand was 12% above 2006 levels.

with internal and external political tensions, have been sufficiently strong to support lively demand for gold coins.

In the first quarter of 2008 jewellery demand in the region is likely to be weak. The price has been particularly volatile and consumers’

Turkey also saw strong growth in jewellery demand in Q4; at 38.0

expectations of further price rises are muted given the extent of the

tonnes, this was 19% higher than Q4 2006. The appreciation of the

increase that has already occurred. Nevertheless sentiment towards gold remains generally positive, quality products sold by effective retailers are becoming available to a wider range of people and trade promotions across the region are strong. Coupled with the strong economic situation throughout the region this should enable some rebound in demand once the price stabilises even though this may be at a somewhat lower level than during the last period of price stability.

Turkey 2007 brought record demand in Turkey for both consumer demand in total (up 11% over 2006 at 249.3 tonnes) and for net retail investment (up 2% over 2006 at 61.1 tonnes). Jewellery demand was the second highest annual figure ever; at 188.1 tonnes, this was 14% up on 2006 but 7 tonnes below the 2005 record). In the past Turkish demand has varied substantially along with the country’s economic fortunes. The improved economic performance following the 2001 crisis has helped bring about five years of

FEBRUARY 2008

17

Source: WGC

Gold Demand Trends lira during the year limited the rise in the gold price; the monthly average price in December was only 6% higher than the September average. As chart 17 shows, it is only in recent days that the price has surpassed the peaks in mid-2006. In addition to the favourable price movements, demand for jewellery during the year was also boosted by a successful television campaign for 22-carat bangles sold at a low premium over the gold price; the WGC’s partner in this campaign reported selling over 4 tonnes more of these products than in 2006, leaving aside any spillover effect on other retailers. In contrast to jewellery, net retail investment was sharply lower in Q4, only just over half year-earlier levels. This does however follow three quarter of very strong offtake, and it did not prevent total offtake for 2007 achieving its new record. Turning to the outlook for gold demand in Turkey during 2008, it is likely that the rising price will become the main influence on demand as even Turkish local prices reach new record levels. Early indications show jewellery demand beginning to ease, while scrap levels are rising in response to the price moves.

Source: GFMS Ltd, WGC

USA

shows only a marginal drop in US$-denominated demand com-

With the US economy slowing, and with the pressure exerted by

pared with 2006 (-1%); therefore it would appear that in 2007

rising gold prices, purchases of gold jewellery declined to 262.9

consumers allocated a similar sized budget for spending on gold

tonnes in 2007, a 14% drop on 2006 levels. The fourth quarter wit-

jewellery as they did the previous year.

nessed a further decline in the country’s economic fortunes as GDP growth slowed, the dollar continued to decline in value and interest

The retail investment market for gold fared better during the fourth

rates were cut in an attempt to stave off recession and ease condi-

quarter. Demand for bars and coins totalled 6.1 tonnes, an increase

tions in the credit market. Consumer confidence ebbed and this was

of 65% over Q4 2006. For the year as a whole, investment demand

reflected in weak retail sales data.

of 15.2 tonnes was 53% down on 2006 levels, but the comparison is somewhat distorted by strong demand generated by the launch

Against this gloomy background, the drop in fourth quarter jewellery

of the Buffalo coin in 2006.

sales became more pronounced; down 17% year-on-year to 104.6 tonnes. In dollar value terms however, this represented an increase

Europe

of more than 6% over Q4 2006. While the high end of the jewellery

A combination of the rising price of gold and deteriorating global

market was more resilient to the downturn in Q4 sales than the mass

economic conditions further diminished the appetite for gold among

market, even luxury brands experienced a lacklustre Christmas sea-

Italian consumers in the fourth quarter of 2007. Annual gold

son. Initial indications suggest that imports of gold jewellery fell con-

jewellery demand amounted to 58.8 tonnes in 2007, which equates

siderably in 2007 and the outlook for jewellery demand in the year

to a 9% drop compared with 2006. Fourth quarter demand was 10%

ahead is pessimistic as retailers - already experiencing tough eco-

lower at 28.6 tonnes. Branded and high-range gem set gold

nomic conditions - find it difficult to keep pace with the gold price.

jewellery did not suffer unduly; therefore it was once again the generic gold market that bore the brunt of a decline in sales as retail

Looking at US jewellery demand in value terms, the chart illustrates

spending in general declined against a backdrop of waning

how jewellery sales have increased sharply in value, while declining

consumer confidence.

in tonnage, since 2001, peaking at almost US$6billion in 2006. Jewellery demand in 2007 was over 72% higher in value terms than

Evidence suggests that, while record gold prices have had a deter-

in 2001, compared with a 32% drop in demand in tonnes. The data

rent effect on consumption, volatility in the price has led consumers

FEBRUARY 2008

18

Gold Demand Trends to be more cautious in their purchases. Consequently, companies

A surge in the demand for gold jewellery in Russia during the final

that use the most advanced technology in their manufacturing

quarter took annual demand to 77.0 tonnes in 2007, an increase of

process have increased their share of traditional markets, for exam-

11% over 2006. Russia was one of the few markets where jewellery

ple in machine-made chains.

purchases increased in the final quarter and the 25% increase was the fastest rate of growth in any country. Demand hit a new quarter-

In the UK, demand for gold jewellery registered its sixth successive

ly record of 24.9 tonnes as consumer incomes continue to rise and

annual decline, falling 8% to 48.6 tonnes. Quarterly data show

imports continue to accelerate accordingly. Jewellery sales are

demand dropping 10% year-on-year to 24.7 tonnes. Hallmarking

expected to stay strong in 2008, although the pace of growth in

data confirms this trend, with the number of items being hallmarked

demand should decelerate as recent spectacular growth rates are

declining by around 5% during both the year and the fourth quarter.

unlikely to be sustained, particularly in light of soaring gold prices.

It is worth noting however, that during 2007 the number of 22-carat items being hallmarked increased (+12.2%) at the expense of

Net retail investment in Europe as a whole remained negative in

lower-quality 9-carat items (-6.1%). 18-carat items being hallmarked

2007 as dishoarding in France continued to outweigh investment

also decreased in number (-1.3% in 2007), although the weight of

purchases elsewhere. At 5.9 tonnes however, outflows across the

those items rose by 9.6%. The outlook for the UK is similar to that

region were considerably lower than 2006, when disinvestment

for many other countries as we head into 2008, with demand for

reached 12.3 tonnes. At just under one tonne, fourth quarter net

gold jewellery likely to decline further given the pressures being

retail investment was positive for the first time since Q4 2003 as buy-

exerted by record high gold prices and an uncertain economic

ing in Switzerland more than doubled to 4.5 tonnes and there was

environment.

a slowdown in net selling in France.

FEBRUARY 2008

19

Gold Demand Trends HISTORICAL DATA Table 7: Historical data for identifiable gold demand1 Tonnes ETFs & Industrial & similar dental

Jewellery

Net retail invest.

1999

3,139

359

-

2000

3,204

166

-

2001

3,008

357

-

2002

2,660

340

2003

2,482

2004

2,614

2005

$bn ETFs & Industrial & similar dental

Total

Jewellery

Net retail invest.

412

3,911

28.12

3.22

-

3.69

35.03

451

3,821

28.75

1.49

-

4.05

34.29

363

3,727

26.21

3.11

-

3.16

32.48

3

357

3,360

26.48

3.38

0.03

3.56

33.45

292

39

381

3,194

28.99

3.41

0.46

4.45

37.31

338

133

412

3,497

34.54

4.46

1.83

5.41

46.24

2,707

385

208

431

3,731

38.67

5.45

3.03

6.15

53.30

2006 20072

2,283

399

260

458

3,400

44.48

7.77

4.94

8.90

66.08

2,426

405

251

465

3,547

54.20

8.93

5.72

10.40

79.25

Q1’04

569

81

16

101

768

7.47

1.07

0.22

1.33

10.09

Q2’04

632

85

5

109

831

7.99

1.07

0.06

1.38

10.51

Q3’04

602

76

-2

102

778

7.77

0.99

-0.03

1.31

10.04

Q4’04

811

95

113

100

1,119

11.31

1.33

1.58

1.40

15.61

Q1’05

681

120

89

106

996

9.36

1.65

1.22

1.46

13.68

Q2’05

740

110

-2

111

959

10.16

1.51

-0.02

1.52

13.17

Q3’05

614

86

38

108

845

8.68

1.21

0.53

1.52

11.95

Q4’05

672

69

84

106

931

10.46

1.08

1.30

1.65

14.50

Q1’06

490

89

113

112

804

8.73

1.58

2.01

1.99

14.32

Q2’06

527

93

49

115

784

10.63

1.88

0.99

2.32

15.81

Q3’06

557

107

19

115

799

11.14

2.14

0.38

2.30

15.97

Q4’06

709

110

79

116

1,013

13.97

2.17

1.56

2.28

19.98

Q1’07

565

108

36

116

826

11.81

2.26

0.76

2.42

17.25

Q2’07

671

127

-3

119

914

14.39

2.73

-0.07

2.55

19.61

Q3’07 Q4’072

604

103

139

118

964

13.20

2.25

3.05

2.57

21.07

586

67

78

113

843

14.80

1.69

1.96

2.85

21.31

Source: Tonnage data are GFMS; Value data are WGC calculations based on GFMS data. 1. See footnotes to Table 1 for definitions and notes. 2. Provisional

FEBRUARY 2008

20

Total

Gold Demand Trends Notes and definitions All statistics (except where specified) are in

Retail investment. For the three bar, coin

Industrial demand. The first transformation of

weights of fine gold.

and medallions categories this comprises

raw gold into intermediate or final products des-

Tonne = 1,000 kg or 32,151 troy oz of fine gold. Na

= not available

…

= not applicable

individuals’ purchases of coins and bars

tined for industrial use such as gold potassium

defined according to the standard adopted by

cyanide, gold bonding wire, sputtering targets.

the European Union for investment gold.

This includes gold destined for plating jewellery.

Medallions of at least 99% purity, wires and lumps

Dental. The first transformation of raw gold into

sold in small quantities are also included. In prac-

intermediate or final products destined for dental

Mine production. Formal and informal output.

tice this includes the initial sale of many coins

applications such as dental alloys.

Net producer hedging. The change in the

destined ultimately to be considered as numis-

Tourist purchases and “luggage trade”.

physical market impact of mining companies’

matic rather than bullion. It excludes second hand

Purchases by foreign visitors which are normally

gold loans, forwards and options positions.

coins and is measured as net purchases.

for their own use or for gifts are included in

Official sector sales. Gross sales less gross

“Other” retail investment refers to Western

demand in the country of purchase. Bulk pur-

purchases by central banks and other official

Europe and North America. It includes net

chases by foreign visitors (“luggage trade”) which

institutions. Swaps and the effect of delta hedging

investment in physical bullion as defined by the

appear to be intended for resale in the visitors’

are excluded.

EU (other than new coins which are included in

country of origin or a third country are attributed

Old gold scrap. Gold sourced from old fabri-

the two coin categories), individuals’ paper trans-

to the country in which they are resold.

cated products which has been recovered and

actions with a direct physical counterpart plus

Revisions to data. All data may be subject to

refined back into bars.

Over The Counter activity and changes in metal

revision in the light of new information.

Jewellery. All newly-made carat jewellery and

account holdings where measurable and retail

gold watches, whether plain gold or combined

targeted.

Historical data

with other materials. It excludes second-hand

Consumer demand. The sum of jewellery

Data covering a longer time period will be available

jewellery, other metals plated with gold, coins and

and retail investment purchases for a country –

on Bloomberg from February 18; alternatively

bars used as jewellery and purchases funded by

ie the amount of gold acquired directly by

contact GFMS Ltd (+44 (0)20 7478 1777;

the trading in of existing jewellery.

individuals.

[email protected]).

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