Gold for Jewelry is Down in Most Countries

GoldA total of 82.9 million ounces of gold was used in the manufacture of fabricated products in 2007, according to an annual report on the precious metal. This was up 8.3 percent from 76.6 million ounces in 2006. Most of this metal is used in the making of jewelry.

Gold jewelry serves two purposes, according to CPM Group’s 2008 Gold Yearbook, released Monday:

In the industrialized world most gold jewelry is purchased as a discretionary, luxury item, with the jewelry being sold at a high mark-up relative to the value of the jewelry’s gold content. Gold use in this form of jewelry is falling sharply, in part due to the rise in gold prices, but also reflecting weaker overall economic conditions in several major industrialized economies and a shift in preference away from gold jewelry as a luxury purchase by consumers in some markets.

Gold jewelry also is used as a form of gold investment, a form of savings, and an investment, according to the report. This gold jewelry market is most vibrant in India, and throughout the Middle East, and other parts of Asia. Gold use in jewelry in these countries and regions rose sharply last year, reflecting the push to add to gold holdings by investors.

The price of gold has risen to record levels as of early 2008, as investors worldwide have turned to gold and other commodities as a safe haven in times of sharply heightened concerns about overall economic conditions, potential further volatility in world financial markets, and political uncertainties, according to the report. Investors are buying gold as an inflation hedge, as protection against a falling dollar, as an alternative to stocks and bonds, and as a store of value in a world they perceive to have greater risks to their wealth and well being than at any time since the early 1980s.

The 209-page hard-bound report provides statistics on trends in each sector of the gold market in 2007, with insights into likely developments for the coming year. The supply chapter discusses trends in mine production, which declined around 1.1 percent last year but is expected to increase modestly in 2008. Mine production is only a portion of total refined gold supplies, the report explains. While mine production totaled 59.3 million ounces in 2007, secondary recovery of gold from scrapped jewelry, electronics, and other manufactured products bought another 32.4 million ounces of newly refined gold bullion into the international market.

In addition to these conventional sources of supply, around 16 million ounces of gold entered the market from net sales by various central banks, primarily European ones, during 2007. Gold promoters continue to talk about how central banks may begin buying gold, disenchanted with their large holdings of U.S. dollars as monetary reserves. Most central banks have not been buyers and suggest that they are not interested in adding gold to their reserves. The central banks of Russia and Qatar were two notable buyers of gold last year, but, as the Gold Yearbook highlights, their respective purchases of 1.4 million ounces and 380,000 ounces were more than offset by larger sales from other banks.

Investors last year increased their purchases of gold from 39.2 million ounces in 2006 to 43.7 million ounces. Last year was the seventh year of large net gold purchases by investors, which has been the catalyst for the increase in gold prices from $256.60 in early 2001 to a record $988.50 (basis the April Comex futures contract settlement price) on March 5. Investor demand is projected to remain high in 2008, helping to keep gold prices strong, according to CPM Group.