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Gold remains safe haven amid global gloom

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UNSATISFIED DEMAND: A jeweller working on rings made of gold at a workshop in Ahmedabad on Thursday.
UNSATISFIED DEMAND: A jeweller working on rings made of gold at a workshop in Ahmedabad on Thursday.

Special Correspondent

Demand in India up 84% in the fourth quarter of 2008

The metal outperforms most asset classes

Shortages reported across many parts of the world

MUMBAI: Total demand for gold in India, the world’s largest market for the metal, was up 84 per cent in tonnage terms in the fourth quarter of calendar 2008, led by a strong 107 per cent rise in jewellery demand, according to the World Gold Council (WGC) in its report, `Gold Demand Trends’.

Internationally, total demand was up 26 per cent at 1,036 tonnes or $26.5 billion in value terms. The biggest source of demand growth in during the quarter was investment with identifiable investment demand at 399 tonnes (141 tonnes), up 182 per cent with net retail investment up 396 per cent to 304 tonnes (61 tonnes) in the fourth quarter. The most dramatic surge was in Europe, where demand for gold bars and coins increased manifold to 114 tonnes (nine tonnes). Exchange traded fund (ETFs) holdings broke new records and although net quarterly inflow was down, the growth rate was 18 per cent.

In the U.S., the deteriorating economic conditions produced a mixed result for demand with the fourth quarter jewellery demand down 35 per cent. In stark contrast, demand for gold bars and coins rocketed by 370 per cent to 35 tonnes.

In calendar 2008, Indian retail consumers invested an all time Rs. 88,056 crore on gold against Rs. 71761 crore in 2007, an increase of 22.7 per cent. About 71 per cent of this value went towards buying gold jewellery and 29 per cent towards investment products like bars and coins.

Return on investment

Gold in the year 2008 outperformed most asset classes and has provided a 32-per cent return on investment in rupee terms. The compounded annualised returns on investment in gold in the last five years ending 2008 have been 19.54 per cent. In 2009 till date, gold price has appreciated by 10.1 per cent; an annualised return of 81 per cent.

Sustained investor interest against a backdrop of the worst year on record for global stock markets and many other asset classes, helped push dollar demand for gold to $102 billion, a 29-per cent increase. Accordingly, identifiable gold demand in tonnage terms rose by four per cent to 3,569 tonnes.

As shares on stock markets globally lost an estimated $14 trillion in value, identifiable investment demand for gold was up 64 per cent, equivalent to an additional inflow of $15 billion. Over the year, gold price averaged $872 an ounce, up 25 per cent from $695 in 2007.

Investor interest

The most striking trend across the year was the reawakening of investor interest in the holding of physical gold with demand for bars and coins up 87 per cent and shortages reported across many parts of the globe.

Jewellery demand was up 11 per cent at almost $60 billion but down 11 per cent in tonnage terms at 2,138 tonnes. The adverse economic conditions across the globe coupled with a high and volatile price impacted jewellery buying in key markets, but resilient spending on gold jewellery indicates the strength of underlying demand.

According to Aram Shishmanian, the new CEO of the World Gold Council, “these figures confirm that investors around the world recognise the benefits of holding gold during this time of unprecedented global financial crisis, recession and the spectre of future inflation. Gold has again proven its core investment qualities as a store of value, safe haven and portfolio diversifier and this has struck a chord with nervous investors. While current market conditions have impacted consumer spending on jewellery, purchasers in many of the key gold markets understand gold’s intrinsic investment value and continue to buy. I anticipate that gold, as a unique asset class, will continue to play a vital role in providing stability to both household and professional investors around the world,” he added.


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