The Hindu Business Line : Gold demand up in Q4 but 2008 sees overall drop

Chennai, Feb. 19 Gold consumer and investors loosened their purse strings during the last quarter of 2008 as demand for jewellery increased 107 per cent and for retail investment 47 per cent. Overall, offtake of gold jumped 84 per cent during the period.

However for the whole of the calendar year, there was slump in jewellery demand by 15 per cent and in retail investment by 12 per cent.

Weak Q4 2007

Data put out by the World Gold Council, a body of gold producing nations, showed that gold offtake for jewellery was up at 102.1 tonnes during the fourth quarter of 2008 against 49.4 tonnes during the same period in 2007. Net retail investment was up at 45.1 tonnes against 30.7 tonnes during the period.

“This growth rate (in the last quarter) was strongly influenced by a very weak fourth quarter in 2007. Year-end totals were markedly different …, although this still represented a rise of 13 per cent rupee terms,” the council said in comments on the performance.

Pick up in momentum

At the beginning of 2008, ornament gold was quoted at Rs 10,650 for 10 gm. Subsequently on March 17, it hit Rs 13,495 before it began to descend. Then, the price momentum picked up towards September/October when fears of a slowdown in the global economy began to sink in. Barring an occasion when gold ruled at Rs 11,945, the yellow metal was generally above Rs 12,000 during the last quarter.

With investors flocking to the precious metal viewing it as an alternative investment tool, Indian demand also picked up in line with it.

According to the gold council, the fourth quarter was influenced by price volatility. “Consumers had been hoarding cash due to extreme financial conditions, took the opportunity in October when gold prices slid below $900 an ounce, to move back into gold, resulting in acute shortate of the metal. Inventory level among manufacturers and retailers contracted significantly and manufacturers’ order books climbed,” it said.

The council said outlook for the first quarter this year depended on price. The current record price had a negative effect on demand and is likely to trigger higher levels of scrap recycling.

Also, with fewer number of wedding days in the quarter relative to first quarter last year, could result in demand waning. However, haven appeal and uncertainty over other asset classes should see consumers buying gold as and when prices tend to decline.

Unable to sustain

Globally, demand, in tonnage terms, remained strong in the last quarter of 2008, though it was unable to sustain the record highs seen in the third quarter. Total identifiable demand was up 214.7 tonnes (up 26%) compared with same period in 2007.

Annually, demand was up 4 per cent as a very strong second half, which was underpinned by high levels of net investment, more than offset any weakness in the first half.

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