WGC reports strong consumer demand for gold in 2004

The fourth quarter of 2004 represented the fourth successive quarter of strong net consumer demand for gold, with quarterly rises of 6% in tonnage terms and 18% in dollar terms compared with the same period in 2003, the World Gold Council said Thursday. For the year, a higher gold price did not deter buyers with net consumer demand 7% higher than 2003 in tonnage terms and 20% in dollar terms.

The figures, compiled for the WGC by GFMS Ltd., show that jewelry demand performed well in both the fourth quarter, with a rise of 7% in tonnage terms and 19% in dollar terms, and in the year as a whole, up 6% and 19% respectively.

Even in most of the price sensitive markets such as India, the rest of Asia and the Middle East, consumers were comfortable with prices of more than $400 per ounce, WGC said. So sharp price rises in November and early December had much less of a negative impact on jewelry purchases than similar episodes have had in the past.

Net retail investment was slightly lower in the fourth quarter than a year earlier in tonnage terms (9% higher in dollar terms) but 15% higher in 2004 as a whole compared to 2003, WGC said.

“Overall, 2004 was a very good year for consumer demand for gold in key markets around the world,” said James E Burton, WGC chief executive. “We are particularly reassured to see the reinvigoration of desirability in the gold jewelry category, which can be attributed to positive economic conditions as well as improved promotional activities with our retail partners around the world.”

Burton added that 2005 holds some challenges.

“While we are very encouraged by the growth of gold demand in 2004, we must do everything possible to maintain this momentum,” he said. “Gold jewelry, for example, continues to face intensive competition from luxury goods, consumer goods and electronics. Continued marketing and promotional activity with major retail partners is therefore essential to ensure gold jewelry continues to take its share of consumer spend in key markets around the world.”

Demand in key market segments are as follows:

United States. Jewelry demand was slightly below 2003 in volume terms but 12% higher in value terms, WGC said. Retail spending in the U.S. was generally strong last year, but as the year progressed became more fragile due to its reliance on increasing household debt and to concerns about the future of the economy. Additionally, uncertainty over U.S. presidential elections always tends to dampen the purchases of luxuries. Demand for 18-ct. pieces was strong.

United Kingdom. Demand remained subdued in the fourth quarter with off-take 4% below 2003 levels. While the economy was generally strong in 2004, consumer spending lacked the exuberance of recent years. Concern over the impact of rising interest rates and a slowing housing market put consumers in a more cautious frame of mind, making them less conducive to luxury purchases. In 2004, the 18-ct. sector achieved record level of sales with its share of hallmarked items rising to over 10%.

Italy. Demand for jewelry continued to fall with a disappointing Christmas season, making the fourth quarter relatively weaker than earlier quarters and 6% below 2003 levels. As in other Western markets, there is a clear move in favor of higher quality and more stylish pieces and innovative suppliers are doing well, while more traditional suppliers suffer.

India. Economic growth fueled both jewelry and retail investment in the fourth quarter, rising 49% and 32% in tonnage terms respectively over the same period in 2003. Total consumer demand for the quarter was up 46%. For the year as a whole, total consumer demand rose by 17%.

China. Demand was 13% higher in tonnage terms in the fourth quarter and for the year compared to 2003. The WGC K-gold initiative (18 ct. jewelry of a more contemporary style) continued to perform strongly in the fourth quarter with demand rising by 7% year-on-year in volume terms. The more traditional 24-ct. jewelry, chuk kam, saw a rise of over a tenth in volume terms. Better jewelry design is helping to promote buying while the rise in the gold price has made the investment element of any gold purchase more attractive.

Taiwan. Jewelry demand in the fourth quarter was 20% higher than a year earlier, with a strong rally in the traditional wedding market that bought annual demand to 21 tons. This is the first year since the early 1990s in which demand has risen.

Hong Kong. A lively wedding season together with heavy demand from tourists, particularly those from mainland China, boosted demand in Hong Kong in the fourth quarter. Demand for jewelry in 2004 as a whole rose 15%, the first rise since 1997.

Japan. Jewelry demand was 5% higher in the fourth quarter than a year earlier, bringing the rise for the year as a whole to 7%. Consumer confidence grew slowly while still remaining fragile. The high price of platinum also helped gold sales.

Vietnam. Jewelry and investment demand set new records in 2004, rising 12% and 9% respectively from 2003 levels. A strong economy, increased consumer purchasing power, a rising housing market (property is often priced in terms of, and bought with gold), partial liberalization of the gold market, and successful promotion of investment products underpinned this performance.

United Arab Emirates. Fourth quarter demand was restrained by the mourning after the death in November of the President, Sheik Zayed bin Sultan Al Nahyan. Nevertheless, consumer off-take for the year as a whole was a substantial 9% higher in tonnage terms than 2003.

Kuwait. Demand was particularly strong in 2004. Confidence has been high due to the removal of Saddam Hussein, and both business and consumer spending have risen as a result.

Turkey. The fourth quarter saw overall consumer demand rise by 26% in tonnage terms compared to the same period a year earlier. 2004 established a further annual record for both jewelry consumption and consumer demand as a whole.

Early indications for 2005 suggest a continuation of strong promotional-driven demand for gold jewelry in the first quarter with strong buying reported in India and Turkey and for the Chinese New Year, WGC reported. Strong purchasing has also been cited in the Middle East, as a result of a successful Dubai Shopping Festival in January and February, and by the U.S. as a result of Valentine’s Day.

For the year as a whole however, economic conditions are likely to be less favorable to jewelry than 2004, so growth may be weaker than last year. Industrial demand may also suffer from this, WGC said.