Jewelry industry demand for gold in 2006 rose 14 percent to a new annual record of $44 billion, according to figures released by the World Gold Council. Fourth quarter demand was also a record in dollar terms at $13.5 billion. However, at 2,267 tons, tonnage was 16 percent lower than a year earlier, mainly due to declines in the first eight months of the year, when price movements were a deterrent to jewelry purchases, especially in Asia and the Middle East, the London-based organization said.
In the first half year gold demand in the jewelry industry was 28 percent lower than a year earlier in tonnage terms and effectively unchanged in dollar terms, the WGC said. In the third quarter it was 9 percent lower than a year earlier in tonnage terms, but 29 percent higher in dollar terms. In the fourth quarter it was 2 percent higher than in same period of the prior year and 29 percent higher in dollar terms.
As price volatility subsided from late August, conditions became better for jewelry demand, the WGC said. It surged from mid-September to late-October when the price fell below $600 and remained, until the very end of October, in a $570-$600 range. This period also saw the run-up to both Diwali in India and the Eid al Fitr at the end of Ramadan, both of which occurred almost simultaneously in late-October, and which are both strong gold buying occasions. While demand was lower in November, a fall-back of the price in December, coupled with Christmas and the Eid al Adha at the end of the year, helped demand recover.
Overall, the WGC said that consumers and investors pushed demand for gold to a record level of $65.3 billion in 2006, with positive tonnage growth in the investment and industrial segments, along with the double-digit dollar growth in the jewelry sector.
The 2006 figures, compiled independently for the World Gold Council by GFMS Limited, reveal that identifiable investment demand totaled 637 tons in 2006, 7 percent higher than in 2005 in tonnage terms and 45 percent higher in dollar terms, spurred by a 27 percent year on year tonnage increase in holdings of gold Exchange Traded Funds and similar products. The fourth quarter was particularly strong for investment with a 19 percent rise in tonnage terms and a 51 percent increase in dollar terms.
In the industrial sector, demand rose by 7 percent in tonnage terms and 45 percent in dollar terms to set a new annual record.
“We are very encouraged by the record value of gold demand in 2006, showing that consumers are spending more on gold as jewelry and as an investment,” said James Burton, WGC chief executive. “However, we must recognize that although we have seen a steep rise in the dollar value of gold demand, there was also a decline in tonnage demand as extreme price volatility impacted consumers’ jewelry purchases. The first half of the year proved a difficult one for the gold jewelry market as high price volatility deterred consumers from buying. However, more stable prices towards the end of the year resulted in a very satisfactory level of demand.”
Gold supply was tight in 2006, falling 13 percent from 2005 levels to 3,451 tons, due to a sharp reduction in net central bank selling, and to a sharp increase in producer de-hedging, the WGC said. These factors reduced overall supply by 657 tons. Mine output contributed a 56 ton reduction. In 2006 as a whole, de-hedging amounted to 403 tons compared to just 86 tons in 2005. Total mine supply (mine output less net de-hedging) was therefore 15 percent lower in 2006 than in 2005.
The WGC said that 2007 has begun with “brisk demand in most jewelry markets in January,” and that sentiment towards gold jewelry in key markets remains strong. Investment demand also got off to a good start. Prospects for demand in both industry segments are expected to be good in the first half of the year.
However, WGC warns that “any return of excessive price volatility could hinder jewelry purchases.”