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8/14/2019 GDT Q4 FY 2005 Briefing Note
1/141F E B R U A R Y 2 0 0 6
Gold Demand TrendsF E B R U A R Y 2 0 0 6
Full year and Q4 2005 Table ofcontents:
Overall trends
in demand 2
Supply 5
Long-term trends 6
Consumer demand in
individual countries 8
India 8
Greater China 9
Other East Asia 10
Middle East
& Turkey 11
Europe 12
USA 12
Historical data12
Notes and
definitions 13
This briefing note has been written
by the World Gold Council based on
data provided by GFMS Ltd. For
further details see page 14.
Key points:
2005 was a momentous year for gold demand. In dollar terms, new records were set for total
demand, which exceeded $50bn for the first time, and for both jewellery and industrial demand.
In tonnage terms total demand rose by 7% with rises of 5%, 2% and 26% in jewellery, industri-
al demand, and identifiable investment respectively.
The fourth quarter saw substantial inflows of net institutional investment and inflows to the
exchange traded funds (ETFs). For 2005 net ETF inflows exceeded 200 tonnes and the pace
has accelerated in the first weeks of 2006.
In contrast to the rest of the year, price volatility in Q4 had an adverse impact on jewellery and
retail investment markets, particularly in Asia and the Middle East. As a result, demand was
15% lower than a year earlier with a similar fall in jewellery demand and a slightly larger fall in
net retail investment. Industrial demand was 4% higher than a year earlier in Q4 with the rise
concentrated in the electronics sector.
Overall demand in Q4 was sufficiently strong to absorb a 10% year-on-year increase in supply
and a 12% rise in the price.
For 2005 as a whole, new records in tonnage terms were set for jewellery in the UAE and for
net retail investment in India. In Turkey, 2005 was the third successive annual record for total
consumer demand and for jewellery and the fourth successive annual record for net retail
investment.
For 2005 as a whole supply rose by 15% due to higher net central bank selling and a lower pace
of de-hedging. The pattern in Q4 was slightly different with net central bank selling lower than
a year earlier but scrap supplies higher.
Outlook for early 2006 2006 has started with a similar pattern to the end of 2005 with strong investor inflows but with
jewellery demand in many countries adversely affected by price volatility. In the longer term,
jewellery demand is expected to recover and to resume growth once the price has stabilised.
This is born out by market research carried out at the end of 2005 which indicates continued
positive sentiment towards gold in key markets and sustained growth, due to demographic,
economic and attitude changes, in the number of those able and willing to buy quality jewellery.
On the supply side, more positive comments by central banks towards gold prompted market
speculation about the possibility of new central bank buying. The WGC is aware of new inter-
est in gold by certain central banks but, in view of central banks long decision making process,sees no reason to expect immediate substantial purchases.
Embargo - not for release before February 22, 07.00 hours New York time 2006 World Gold Council and GFMS Ltd
www.gold .org
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Gold Demand Trends
2F E B R U A R Y 2 0 0 6
OVERALL TRENDS IN DEMAND
Source: GFMS Ltd. 1. Identifiable end-use consumption excluding central banks. 2. Provisional . 3. Other retail excludes bar and primary coin
offtake; it represents mainly activity in North America and Western Europe. 4. Exchange Traded Funds and similar products including: LyxOR
Gold Bullion Securities, Gold Bullion Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust,
Central Fund of Canada and Central Gold Trust.
2003 2004 20052
% ch2005vs
2004 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Q4'052
% chQ4'05
vsQ4'04
Jewellery consumption 2,477.7 2,618.1 2,736.2 5 604.6 799.5 693.4 740.1 619.5 683.2 -15
Industrial & dental 380.3 409.8 418.5 2 100.8 99.3 98.2 111.5 105.5 103.3 4Electronics 233.0 259.0 269.5 4 63.8 60.6 61.0 71.7 69.2 67.6 12Other industrial 80.3 83.0 84.7 2 20.2 21.9 21.8 23.8 20.0 19.2 -12Dentistry 67.0 67.8 64.3 -5 16.8 16.9 15.5 16.1 16.3 16.5 -2
Identifiable investment 331.3 476.1 599.6 26 75.4 209.4 212.9 107.9 122.3 156.5 -25Retail investment 291.9 343.4 396.2 15 77.5 96.0 124.3 109.5 84.8 77.6 -19Bar hoarding 177.9 248.0 267.6 8 58.1 65.6 83.9 81.9 55.2 46.6 -29Official coin 106.7 113.8 120.4 6 25.2 24.5 40.9 29.6 26.2 23.8 -3Medals/imitation coin 25.5 29.4 36.9 26 7.9 8.5 9.8 9.8 8.6 8.7 2Other identified retail invest.3 -18.2 -47.8 -28.8 -13.7 -2.6 -10.3 -11.8 -5.2 -1.5
ETFs & similar products 4 39.4 132.6 203.4 53 -2.0 113.4 88.5 -1.6 37.5 79.0 -30
Total end-user consumption 3,189.2 3,504.0 3,754.3 7 780.8 1,108.2 1,004.5 959.5 847.3 943.0 -15
London pm fix, $/oz 363.32 409.17 444.45 9 401.30 433.80 427.35 427.39 439.72 484.20 12
A momentous year and a Q4
paradox
2005 was a momentous year for gold
demand. In dollar terms, a new record was
established for total end-use demand which
grew by 16% over 2004 to exceed $50bn forthe first time. Records were also estab-
lished for jewellery, for industrial and dental
demand, and (at least as far back as statis-
tics on current definitions are available) for
retail investment; these were 14%, 11% and
25% respectively higher than 2004. In ton-
nage terms, while all of these remained
below previous peaks, the upward trend of
2004 was reinforced in 2005, giving an
annual increase in total demand of 7%, a 5%
increase in jewellery and a 2% rise in indus-trial and dental demand while identifiable
investment surged by 26%. Exchange trad-
ed funds and similar products (ETFs)
surged by 53%. The gain in identifiable
demand came entirely in the first three quar-
ters. Q3 was the seventh consecutive quar-
ter where identifiable demand showed posi-
tive year-on-year growth in tonnage terms
and the tenth consecutive quarter to show
double-digit year-on-year growth in dollar
terms.
The strength of identifiable demand in the
first three quarters of the year, and its
resilience in the face of a rising but not yet
explosive price, helped to pave the way for
what occurred in the final months of the year.
It was one of the factors, albeit not the only
one, that encouraged the surge in investor
interest in gold from September onwards.
It is therefore something of a paradox that in
Q4, a triumphal period for gold, identifiable
demand figures appear, at first glance, to
have been disappointing. Jewellery demand
was 15% lower than a year earlier in tonnage
terms, net retail investment fell by 29% and
only industrial demand showed modest
year-on-year growth. Even in value terms the
data showed year-on-year falls (see table 2).
The reason this is so is a combination of the
short-term reaction of jewellery and retail
investment demand in certain regions to
price volatility with the statistical problems
of measuring institutional investment, much
of which is therefore excluded from identifi-
able demand data. The year-on-year com-
parison is also unkind to investment in
Exchange Traded Funds and similar prod-
ucts; Q4 2005 was a strong quarter for them
but suffers by comparison with Q4 2004
when the market leader, StreetTRACKS
Gold Shares, was launched attracting an
exceptional initial burst of interest.
The reaction to price volatility
One of the keys to this puzzle lies in the
reaction to price volatility of jewellery, coin
and bar buyers in many Asian and Middle
East countries, a region which accounts
for around 60% of gold demand. Much jewellery here is sold by weight with a
price that varies directly according to the
international gold price and at a small
mark-up over that price. Thus a change in
the gold price impacts immediately on the
price at which jewellery is sold to the con-
sumer. Sharp movements in the interna-
tional price often make newspaper head-
lines so that consumers are very aware of
price movements. During periods of a
sharply rising price, therefore, consumerswill hold back from, or postpone, purchas-
ing as they do not wish to buy and then
risk seeing their purchase fall in value due
to a subsequent price fall. Purchasing may
also be funded by trading in a piece of
equivalent weight a transaction which is
neutral as regards gold demand and jew-
ellery may even be sold to take a profit.
Buying returns once consumers see the
price stabilise or, if they are confident
about the underlying strength of the price,
on a price dip. Rising prices also encour-
age many retail investors in this region to
take a profit.
Table 1: End-use gold demand (tonnes)1
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Gold Demand Trends
3F E B R U A R Y 2 0 0 6
2003 2004 20052
% ch2005 vs
2004 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Q4'052
% chQ4'05 vs
Q4'04
Jewellery consumption 28,942 34,441 39,099 14 7,801 11,151 9,527 10,170 8,758 10,636 -5
Industrial & dental 4,442 5,391 5,980 11 1,300 1,386 1,349 1,533 1,491 1,607 16
Electronics 2,722 3,408 3,850 13 823 845 838 985 978 1,052 25Other industrial 938 1,091 1,211 11 260 305 299 326 283 298 -2Dentistry 782 892 919 3 217 236 213 221 230 257 9
Identifiable investment 3,870 6,263 8,568 37 973 2,921 2,925 1,482 1,729 2,437 -17Retail investment 3,410 4,518 5,661 25 999 1,339 1,709 1,504 1,199 1,208 -10
Bar hoarding 2,078 3,263 3,824 17 750 914 1,153 1,125 781 726 -21Official coin 1,246 1,497 1,721 15 325 342 562 407 370 370 8Medals/imitation coin 298 386 527 36 102 118 135 135 121 135 14Other identified retail invest. -212 -628 -411 -177 -36 -141 -162 -73 -24 -35
ETFs & similar products 460 1,745 2,907 67 -26 1,582 1,217 -22 531 1,229 -22
Total end-user consumption 37,253 46,095 53,647 16 10,075 15,457 13,802 13,185 11,978 14,680 -5
Table 2: End-use gold demand ($m)1
Source: WGC calculations based on GFMS data. 1. See notes to Table 1. 2. Provisional.
Institutional investment andthe balance figure
The second key to this puzzle lies in the
balance figure in table 3 on page 5. The
complexity and client confidentiality require-
ments of the investment market means that it
is impossible to capture comprehensive
institutional investment data formally, other
than those in the ETFs and similar funds,
although structured discussions by GFMS
with market participants, together with mar-
ket reports and anecdotal evidence, make it
possible to form a view of the probable range
of outturn. The balance figure in table 3,
which is the difference between measured
supply and identified demand, is largely
made up of net institutional investment
although it can include stockbuilding and
other residual elements as well as statistical
error. The substantial figure of 196 tonnes,
however, matches with market reports of
extensive interest in gold investment.
Overall, the fundamental strength of demand
for gold, even in Q4, was demonstrated by
the fact that it absorbed a 10% increase in
supply compared to a year earlier in the face
of a 12% rise in the price.
Investment in 2005
Identifiable investment in 2005 was 26%
higher than a year earlier in tonnage terms
and 37% higher in value terms. The fastest
growing category was the Exchange Traded
Funds and similar products (ETFs) which
grew by a massive 53% in tonnage terms
and 67% in dollar terms. Of the total 203
tonnes inflow, 168 tonnes, or 83% of the
total, were accounted for by the WGC-
backed streetTRACKS Gold Shares.
At the beginning of the year, ETF inflows
were partly due to the initial surge of interest
which followed the launch of streetTRACKS
Gold Shares, in November 2004 and that of
iShares Comex Gold Trust in January 2005.
But while in the second quarter overall
investment in the funds stagnated with
steady growth in streetTRACKs being offset
by redemptions elsewhere, the second half
of the year saw renewed growth in all but the
two small closed-end funds, with very sub-
stantial growth in the fourth quarter.
Interest in the ETFs accelerated further in the
first weeks of 2006. Inflows into the four
WGC-backed funds and the iShares Comex
Gold Trust by mid-February this year alreadyexceeded 100 tonnes, a figure greater than
the whole of the fourth quarter.
The growth of the ETFs is hugely positive for
gold demand. Market reports indicate that
the vast majority of the inflow consists of new
investment with little cannibalisation of exist-
ing gold investments. Further, the majority of
investors appear to be long-term holders. By
mid-February 2005 the 431 tonnes held in
the WGC-backed Exchange Traded Gold
stable made it the 12th largest recorded gold
holder in the world, exceeded only by the
10 largest central bank gold holders and the
IMF. Indeed, as market commentators have
pointed out, inflows into the ETFs in the first
weeks of 2006 easily exceeded the average
rate of net central bank selling during 2005.
The ETF growth was not, however, the only
investment story of 2005. There was positive
growth (or smaller outflows) in all recorded
categories. Bar hoarding and official coins
increased by 8% and 6% respectively over
the year; the pattern of demand within the
year was similar to that of jewellery with
strong growth in the first part and then
dishoarding as a result of the sharp price rise
in the final quarter. Medals and imitation
coins, a category concentrated largely in
India, grew by a substantial 26% over the
year as a whole with growth again concen-
trated in the first half of the year. Other retail
investment (primarily investment other than
primary sales of coins in Western Europe and
North America) remained negative but netoutflows were much smaller than in 2004.
Institutional investment other than in the
ETFs is, as explained above, captured in the
balance figure. For much of the year this
showed little movement apart from a sub-
stantial outflow of short-term investors in the
second quarter disappointed by the then
largely static price. All this changed, howev-
er, from the end of the third quarter with the
substantial flow of funds into gold invest-
ment. The balance figure for Q4 of 196
tonnes includes both short-term and long-
term flows. It will also have included the net
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quantity of gold acquired by financial inter-
mediaries in order to underpin their trading
positions, although the clear majority would
have been due to an increase in investors
holdings.
Gold investment in Q4 was driven by a vari-
ety of factors: renewed concerns over the
dollar, worries about asset-price bubbles and
government and consumer debt in certain
countries, ongoing political tensions, the
increasing evidence of strong fundamentals
for gold, growing interest among investors in
commodities generally and, increasingly, the
interest being generated by the rapid
upward movement in the gold price.
The TOCOM exchange in Tokyo was a major
driver of speculative interest, in part due to
the interaction of gold price trends with the
yen/dollar exchange rate. The month of
December saw an exceptional level of gold
bullion imports into Japan at 25 tonnes this
was five time year-earlier levels. This growth
appears to have been almost entirely due to
financial intermediaries seeking to hedge
their trading positions.
Over the year as a whole, and particularly in
the final months, evidence of growing
investor interest in gold has also been seen
in other areas such as reports of inflows into
gold-oriented funds, activity on the COMEX
exchange and activity in structured products
such as warrants and certificates.
Jewellery
As indicated above, jewellery demand in2005 was 5% higher than 2004 in tonnage
terms and a substantial 14% higher in dollar
terms. (The majority of golds main markets
are countries whose currency is linked,
either tightly or loosely to the US dollar, mak-
ing the US currency a reasonable proxy for
value trends.) In tonnage terms, despite the
impact of price volatility in Q4, double-digit
increases for the year as a whole were seen
in India (up 14%) and Saudi Arabia (up 12%)
with solid increases of around 6 to 8% in
China, Taiwan, UAE and Turkey. New annual
records were set in UAE, Vietnam and, for
the third successive year, in Turkey. Falls in
demand occurred only in Europe (Italy and
the UK), the price-sensitive market of
Indonesia (where the depreciation of the
rupiah pushed prices higher throughout the
year) and, to a limited extent, in Japan
although demand was recovering by the end
of the year.
The resilience of jewellery demand in the
face of the rising trend in the price was due
to several factors:
Generally strong economies and rising
incomes;
Demographic, wealth and attitudechanges that are boosting the numbers
of those who fall into gold jewellerys key
markets. This has been confirmed by
market research carried out towards the
end of 2005;
The increase in gold promotional activity
of the last few years and the improved
product offering in key markets (see the
Q2 2005 issue of this note).
Price movements affected the quarterly
pattern within the year and added to or sub-
tracted from the underlying momentum. In
the first half of the year these movements
were favourable; the price remained reason-
ably stable, and, importantly, slightly below
the peak reached in November 2004 (see
figure 1). Given the growing belief that the
price of gold was on an upward trend, this
provided additional impetus to buying in
those markets sensitive to price volatility. Asa result overall jewellery demand in the first
half-year was a substantial 18% higher than
a year earlier in tonnage terms (with a
massive 53% rise in India) despite the 7%
rise in the dollar price. In the third quarter
prices started to climb with a deterrent effect
on demand in those same markets; overall
jewellery consumption was just 2% higher
than a year earlier (demand in India being
effectively unchanged). Then the sharp rise
and increasing volatility in the price in the
fourth quarter had its expected impact on
demand in Asian and Middle East markets
resulting in overall jewellery demand falling
15% in tonnage terms compared to a year
earlier and 5% in value terms (with a 51%
tonnage fall in India).
Prospects for jewellery demand
While the gold price remains volatile, gold
jewellery demand will be affected; what
happens once the price stabilises? The
exceptional rise in the price over the past
six months inevitably poses the question as
to whether the growth in jewellery demand
seen in 2004 and 2005 can be sustained if
the price remains at or close to current lev-
els, particularly in Asia and the Middle East
which together account for over 60% of the
global total. It was clear that the price rises
seen until mid-2005 did not prevent an
increase in demand once the short-term
impact of any volatility had been over-
come; indeed given the investment ele-
ment of gold jewellery buying the upward
trend in the price made gold more desir-
able. But the price has jumped by more
than $100 an ounce since consumers in
these markets were last buying heavily
will the positive factors be sufficient to over-
come this much higher hurdle once the
price stabilises?
Gold Demand Trends
4F E B R U A R Y 2 0 0 6
90
100
110
120
130
140
150
Jul-04
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
US$
Ind Rupee
Yen
Euro
Figure 1: The gold price, July 2004 to January 2006 (indices, Jan 2, 2004=100)
Jul
04
Oct
04
Jan
04
Apr
05
Jul
05
Oct
05
Jan
06
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2003 2004 20051
%change2005 vs
2004 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Q4'051
%change
Q4'05 vsQ4'04
Supply
Mine production 2,593 2,463 2,494 1 648 643 574 607 655 658 2Net producer hedging -270 -427 -138 -140 -114 -22 -70 -31 -15
Total mine supply 2,322 2,037 2,355 16 508 528 552 536 624 643 22Official sector sales 617 471 663 41 64 214 271 151 79 161 -25Old gold scrap 939 834 841 1 183 206 208 191 201 242 17Total supply 3,879 3,342 3,859 15 755 948 1,032 878 904 1,045 10
Demand
FabricationJewellery 2,478 2,618 2,736 5 656 687 712 770 664 590 -14Industrial & dental 380 410 418 2 101 99 98 112 105 103 4
Sub-total above fabrication 2,858 3,028 3,155 4 757 786 811 882 769 693 -12Bar & coin retail investment 310 391 425 9 91 99 135 121 90 79 -20Other retail investment -18 -48 -29 -14 -3 -10 -12 -5 -2 -42ETFs & similar 39 133 203 53 -2 113 89 -2 38 79 -30Total demand 3,189 3,504 3,754 7 832 995 1,024 990 891 850 -15
Balance 690 -162 105 -78 -47 8 -111 13 196
London PM fix (US$/oz) 363.32 409.17 444.45 9 401.30 433.80 427.35 427.39 439.72 484.20 12
Data in this table are consistent with those published by GFMS but adapted to the WGCs presentation and taking account of the additionaldemand data now available. The balance figure differs from the implied net (dis)investment figure in GFMS supply and demand table asit excludes ETFs and similar and other retail investment. Note that jewellery data refer to fabrication and quarterly data differ from thosefor consumption in tables 1 and 2. 1. Provisional. 2. Excluding any delta hedging of central bank options. 3. Equal to the sum of the first threerows in Table 1. 4. This is the residual from combining all the other data in the table. It includes institutional investment other than ETFs &similar, stock movements and other elements as well as any residual error.
Market research carried out on behalf of the
World Gold Council at the end of last year
provides both encouragement and addition-
al explanations of why jewellery demand
proved so strong in the last two years in the
face of a rising price. Economic, demo-graphic and attitudinal changes have
together resulted in a significant increase in
the size of key markets for gold - those who
have the ability and desire to buy good qual-
ity jewellery. Attitudes to gold jewellery and
buying intentions remain overwhelmingly
positive. Coupled with the increasing desir-
ability that a rising price generates, this
seems likely to offset the reduced affordabil-
ity that the price increase will bring.
Provided promotion is both sustained and
appropriate and provided the product offer-
ing is attractive to the potential purchaser,
the market appears fundamentally strong.
Details of this research, which updates a
major study carried out in 2002, will be pub-
lished by the World Gold Council in April.
Consumer research conducted in India at
the end of 2005 also showed that funda-
mental consumer demand and perceptions
of golds value remained strong, and that
price volatility, rather than the absolute price
point, was the deterrent for purchasing.
Industrial demand
Industrial and dental demand rose by 2% in
2005 with the increase in industrial demand
slightly offset by a fall in dental offtake.
Electronics demand for gold rose 4% in
2005. Growth in the first part of the year wasrestrained by high inventory levels and con-
cerns among fabricators of possible falls in
end-product sales in fact offtake in the first
two quarters was lower than year-earlier lev-
els. The second half saw recovery spurred
by the strong US and global economy.
Sales of gold bonding wire picked up from
August as inventories were rebuilt.
In Q4, electronics demand, which is not
price sensitive in the short term (although it
is to some extent in the longer term), was
12% above year-earlier levels. Japanese
demand rose strongly in Q4, continuing the
trend established in Q3. Demand in
Singapore and South Korea, as well as in
the US, was over 5% higher than a year ear-
lier while demand in China is estimated to
have risen by at least one tenth. European
demand, in contrast, was unchanged from
Q4 2004.
Other industrial demand includes decorative
uses and much of it arises in India. It too has
broadly followed the pattern of jewellery
demand, rising strongly in the first part of the
year but then suffering from the rising price
in the final quarter.
Dental demand was 5% lower than in 2004.80% of the decline was due to cuts in state
funding of German dental work and was
concentrated in the first half of the year.
SUPPLY
Overall gold supply in 2005 was 15% high-
er than in 2004 due to a combination of
reduced de-hedging and higher official
sector sales. The pattern of year-on-year
supply growth was different in Q4 with
reduced de-hedging and higher scrap lev-
els offset by lower net selling from central
banks, making overall supply 10% higher
than in Q4 2004.
Reduced de-hedging
Mine production in 2005 was only slightly
higher than in 2004. A number of new
mines came on stream or ramped up to
design capacity during 2005. Production
was also boosted by a return to normal
operations at Grasberg in Indonesia. In
contrast there was a further decline in
Gold Demand Trends
5F E B R U A R Y 2 0 0 6
Table 3: Gold supply and demand (WGC presentation)
2
3
4
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South African production. Worldwide,
Q4 output was just 2% higher than a
year earlier.
As expected, 2005 saw less de-hedging
than 2004 due to the planned evolutionof de-hedging programmes. Total mine
supply was therefore 16% higher. Q4
2005 saw new hedging to finance new
projects in Australia and Kazakhstan;
this largely offset the de-hedging that
took place reducing net de-hedging to
just 15 tonnes.
Interest from central banks but
immediate purchases unlikely
At 663 tonnes, net central bank selling
was a record. The rise of 41% compared
to 2004 was due to the higher net level of
annual sales (500 vs 400 tonnes) under
the second Central Bank Gold
Agreement (CBGA 2) compared to the
first Agreement and the fact that there
was no significant buying comparable to
Argentinas purchase of 55 tonnes in
2004. Most of the selling came from
CBGA 2 signatories; the Philippines were
also a major declared seller and smaller
sales came from the Bank for
International Settlements. In Q4, the tim-
ing of CBGA 2 sales meant that net cen-
tral bank selling was slightly lower than a
year earlier; CBGA signatories sold 139
tonnes while, as in the rest of the year,
the major seller outside the CBGA was
the Philippines.
Central banks were under the spotlight inthe final weeks of the year following posi-
tive remarks about gold by a number of
them at the London Bullion Market
Association annual conference in
November. This was taken as indicating
that several were considering further
investment in gold and appeared to be
one of the main triggers of the rise in the
price during the last few weeks of the
year. The WGC is indeed aware, both
from its own contacts and from market
reports, of some interest in gold from a
number of central banks. However, cen-
tral banks typically have a long decision-
making process and the WGC sees no
reason to expect significant purchases in
the immediate future.
Scrap lower in first half, higher
in secondOver the year as a whole scrap supply
was little changed from 2004. This dis-
guised different movements during the
two halves of the year. Scrap was lower
during the first half than in the first six
months of 2004, reflecting the relative
stability in the price during that period
and the absence of significant econom-
ic distress. The rising price in the sec-
ond half year attracted a higher level of
supply; Q4 saw supplies 17% higher
than a year earlier.
FOCUS ON:
LONG TERM
TRENDS - TURNING
ROUND THE
SUPERTANKERS
A consideration of longer-term supply and
demand trends over the past ten years,
from 1996 to 2005, offers some interesting
insights. 1996 marked the end of what,
with hindsight, looked like a period of rel-
ative calm in the gold market and the start
of one of the most difficult periods for the
metal since the price was fully freed in
1971. The last years of the 1990s were nota happy time for the industry with weak-
ening demand and rising supply. The new
century, however, has seen most of the
negative elements of the supply and
demand story turn, one by one, more
positive.
The economic and political climate of the
late 1990s was not favourable to gold
inflation appeared to have been con-
quered, the world economy was, overall,
growing rapidly, stock markets were
booming and shocks such as the 1997/98
Asian crisis were handled in a way that
limited their economic impact outside the
immediate area. Golds traditional values
and safe-haven status had little appeal in
this heady climate. Against this back-
ground, supply and demand trends in the
gold market were, broadly, unfavourable.
On the supply side the period saw a rise in
mine output and substantial increases in
hedging so that mine supply rose. It was
from 1996 that central bank sales started
to be of concern to the market. The extent
of actual selling was not that great but
there were a sufficient number of high pro-
file and, at times, surprising sellers to
raise concerns about the possible threat
of a tidal wave of central bank selling.
1998 also saw a surge in the supply of
scrap to the market as a result of the Asian
crisis of 1997-99, due in particular to the
Korean national gold collection campaign.
Meanwhile demand trends also proved
adverse. Industrial fabrication remained
on a gentle upward trend but this was
overshadowed by trends in jewellery and
investment. Jewellery demand was on an
upward trend during much of the 1990s
but after 1997 it first stagnated and then
fell in tonnage terms. Worse, the amount
spent on jewellery in dollar terms also fell.
The stagnation after 1997 is not immedi-
ately easy to explain since the world econ-
omy, including countries which were
golds major markets, was growing
strongly. Two factors probably account for
Gold Demand Trends
6F E B R U A R Y 2 0 0 6
Figure 2: Mine supply 1995-2005(tonnes)
-500
0
500
1,000
1,500
2,0002,500
3,000
3,500
1995 1998 2001 2004
Mine production Hedging
Mine supply
Source: GFMS Ltd
8/14/2019 GDT Q4 FY 2005 Briefing Note
7/14
it. First, the fall in the price reduced the
desirability of jewellery (since in many
countries this has an investment element).
Second, the impact of the fall in the gold
price on the financial position of gold min-
ing companies resulted in them reducing
the support they were able to give to pro-
motional activities. This proved critical
since at the same time producers of com-
peting goods and services started to mar-
ket their products heavily to the increas-
ingly wealthy and sophisticated con-
sumers in the towns and cities of Asia and
the Middle East. Traditional gold products
were not always appealing to this market
which looked for more stylish and innova-
tive goods.
The economic climate and the falling price
left gold with little attraction for institution-
al and western investors. With the excep-
tion of short-term speculative investors,such as certain hedge funds, institutional
investment almost dried up during this
period.
The combination of the adverse (for gold)
economic climate and the weakening fun-
damentals for the metal resulted in the
price falling below $300 an ounce and
remaining close to the 20-year low of just
over $250 per ounce until 2001.
Over the last few years these negative
development were, one by one, reversed.
The first positive move was the Central
Bank Gold Agreement announced in
September 1999. This provided some
control over the amount of gold that cen-
tral banks placed on the market coupled
with transparency and reassurance to the
market that there was not going to be a
tidal wave. The amount of selling did not,
however, decrease in fact it rose but it
was no longer seen as a major threat to
the market.
The second change occurred in 2000
when net producer hedging turned to net
de-hedging, thus reducing, rather than
increasing, the amount of mine supply. At
the same time mine output reached a
plateau and has been largely stagnant
since. De-hedging has since appeared to
have reached its natural peak and is
currently subsiding (with limited evidence
of some new hedging), but the potential
increase in supply from this source can, inthe current climate and with other funda-
mentals strong, be accommodated by
rising demand, as 2005 has demonstrated.
Trends on the demand side turned later.
Increased promotion was directed
towards jewellery and this was coupled
with a more structured and research-
driven approach to marketing. The result
was a turn-round from 2004. Favourable
economic conditions and consumers
becoming accustomed to a higher level of
gold prices contributed to this. However,
the more focused, market research-based
and intensive promotional drive intro-
duced by the World Gold Council in 2003,
coupled with initiatives to improve the
product offering was, almost certainly, a
key element in the upturn. Nevertheless in
dollar terms the value of jewellery demandonly exceeds that of the 1997 peak by a
limited amount; given the growth in the
world economy there remains much
potential for further gains.
From 2003 investors started to take a
gradually increasing interest in the metal.
The economic and political background
became more favourable to gold with falls
in stockmarkets from 2000, the 2001 eco-
nomic slowdown, the fall in the dollar from
2002 to 2004, current fears of asset price
bubbles and global imbalances, and the
perceived rise in political tension after
9/11. In addition investors have begun to
appreciate the long-term strategic bene-
fits gold can bring to a balanced portfolio
while the introduction of exchange traded
funds has made access to the metal
cheaper and easier for many investors.
2005 has also seen the start of what
appears to be awakening interest in com-
modities generally by some pension funds
and other major institutional investors. All
this appears to be the start of a longer-
term trend.
The latest element consists of the new
interest shown by some central banks as
mentioned in the previous section. As dis-
cussed, while major purchases may not be
imminent the change in tonality of centralbank utterances appears symptomatic of a
change in attitude which may ultimately
bring to an end the long period during
which central banks appeared consistently
on the selling side of the balance.
Thus the last few years have seen a rever-
sal of the major trends which were so neg-
ative to gold in the late 1990s. Some of
these reversals have taken considerable
time but, like supertankers turning, once
the turn is made it seems unlikely to be
reversed again in the immediate future.
Gold Demand Trends
7F E B R U A R Y 2 0 0 6
Source: Tonnage data: GFMS Ltd; Dollar data: WGC calculations based on GFMS data
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1980 1984 1988 1992 1996 2000 2004
tonnes
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
US$m
tonnes (lh scale) $m (RH scale)
Figure 3: Gold jewellery demand in tonnes and dollars
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8/14
CONSUMER
DEMANDa
TRENDS
IN INDIVIDUAL
COUNTRIES
India
Consumer demand in India in 2005 was
17% higher than in 2004, continuing the
upswing started in 2004. In rupee terms,
this was equivalent to a 25% increase
bringing the value of gold demand to asecond successive annual record.
Jewellery demand, also a second suc-
cessive annual record in rupee terms,
with an increase of more than a fifth over
2004, rose by 14% in tonnage terms
(although this remained below the record
year of 1998 when demand was boosted
by a post-liberalisation surge). Net retail
investment, in contrast, set a new annual
record in tonnage terms, with a massive
34% increase over 2004, as well as post-
ing a third successive record in rupee
terms (43% rise over 2004).
The underlying reasons for the strength
of demand in India are the strong econo-
my, the increase in the numbers of
women in golds key target markets
occasioned by demographic, economic
and attitude changes, the traditional cul-
tural affinity to the metal, and the
improvement in product offering and
marketing of the last two years. However,
India is extremely sensitive to gold pricevolatility, and the reaction to price move-
ments can make, as the past year has
demonstrated, a substantial difference to
actual offtake in the short term. The first
half saw extremely high levels of offtake
with jewellery demand 53% higher than a
year earlier. The third quarter, a period of
transition when prices started to rise, saw
jewellery demand essentially unchanged
from year-earlier levels, while the fourth
quarter saw a fall of 51%.
Indias reaction to gold price volatility is
demonstrated in figure 4 which shows
Gold Demand Trends
8F E B R U A R Y 2 0 0 6
2004 20051
% change 2005 vs 2004
JewelleryNet retail
invest. Total JewelleryNet retail
invest. Total JewelleryNet retail
invest. Total
India 517.5 100.2 617.7 589.0 134.7 723.7 14 34 17 Greater China 258.7 12.2 270.9 277.7 14.9 292.6 7 22 8 China 224.1 9.8 233.9 241.4 11.7 253.1 8 20 8 Hong Kong 13.8 1.2 15.0 14.0 0.6 14.6 1 -48 -3Taiwan 20.7 1.2 21.9 22.4 2.5 24.9 8 108 13Japan 34.6 67.0 101.6 34.0 46.0 80.0 -2 -31 -21Indonesia 83.9 5.0 88.9 77.0 3.0 80.0 -8 -40 -10 Vietnam 26.1 39.2 65.3 26.9 34.0 60.9 3 -13 -7 Middle East 343.5 17.1 360.6 370.9 22.6 393.5 8 32 9Saudi Arabia 136.2 5.2 141.3 152.3 7.3 159.6 12 42 13Egypt 73.0 0.5 73.5 75.4 0.9 76.3 3 80 4UAE 89.3 6.5 95.8 96.0 10.0 106.0 8 54 11Other Gulf 45.0 4.9 50.0 47.3 4.4 51.6 5 -12 3Turkey 185.7 48.9 234.6 196.9 53.5 250.4 6 9 7USA 350.5 21.3 371.8 352.8 29.4 382.2 1 38 3Italy2 77.2 77.2 71.8 71.8 -7 -7 UK2 70.2 70.2 57.7 57.7 -18 -18 Europe3 -22.7 -22.7 -13.9 -13.9 Total above 1,947.8 288.2 2,236.0 2,054.6 324.1 2,378.7 5 12 6 Other & Stock Ch. 670.2 55.3 725.5 681.6 72.1 753.7 2 31 4Total inc. others 2,618.1 343.4 2,961.5 2,736.2 396.2 3,132.4 5 15 6
Source: GFMS Ltd 1 Provisional 2 Jewellery only 3 Net retail investment only
Table 4: Consumer demand in selected countries (annual)
Figure 4: Indian imports and the rupee price
Source: WGC
0
20
40
60
80
100
120
140
160
Jan-01
Jul-01 Jan-02
Jul-02 Jan-03
Jul-03 Jan-04
Jul-04 Jan-05
Jul-05
tonnes
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
Rs/oz
Imports, tonnes
Price, (monthly av)
Jan
01
Jul
01
Jan
02
Jul
02
Jan
03
Jul
03
Jan
04
Jul
04
Jan
05
Jul
05
aConsumer demand is gold bought by indi-
viduals i.e. jewellery and net retail invest-
ment. Unless otherwise specified all data in
this section refer to tonnage figures and
growth rates are comparisons with the
same period of the previous year.
8/14/2019 GDT Q4 FY 2005 Briefing Note
9/14
gold imports month by month since 2001,
when the upward movement in the gold
price started, and monthly average global
prices for gold translated into rupees over
the same period. It is clear that imports
tend to fall away whenever the price starts
to move upwards but they then rise,
sometimes very sharply, when the price
dips or stabilises.
Q4 saw somewhat stronger buying in the
North and West of the country where the
Diwali period is more celebrated than is the
case in the South. Consumers in the South
are also more sensitive to price volatility.
Net retail investment was less affected bythe upward price movement than jewellery
since the rising price provided some impe-
tus to this form of buying. Strong rises in the
equity and property markets have also
increased investors wealth, and hence the
money available for further investment; gold
took its share of this. Finally the entry, from
2004 onward, of some well-known banks
into the gold coin market has resulted in
further promotion and product availability.
Despite the impact of the sharp rise in the
price on Q4 jewellery purchases, there are a
number of factors which point to the under-
lying strength of Indian gold demand. First,
while selling back and hence scrap levels
rose, the rise was less marked than in earli-
er periods of a rising price. Second, while
imports were clearly affected, figure 4 shows
that they held up better than in other periods
of a strong price rise, particularly in
November and December. Third, indications
from retailers, and from some consumer
surveys, show that, while some gold buying
has been lost with the money spent on other
items, a large number of planned purchases
have simply been postponed. Fourth, the
good monsoon should help retail demand
and there are reports that the usual selling of
gold in rural areas to finance seed purchase
was less marked than usual. Fifth, the econ-omy continues to be strong and, as indicat-
ed, the number of women making up golds
key target market continues to grow. Finally,
the theory that price volatility rather than
price level was the prime deterrent to pur-
chase was confirmed by a consumer survey
carried out for the World Gold Council at the
end of 2005 which also indicated that fun-
damental consumer demand and percep-
tions of golds value remained strong. Thus
while jewellery demand may have been con-
strained in the first weeks of 2006, price
dips, or a period of price stability, are likely
to see a strong level of buying once again.
Greater China
Consumer demand in Greater China rose
by 8% in tonnage terms in 2005 with a 7%
increase in jewellery offtake and a 22% rise
in net retail investment. Over the year as a
whole jewellery demand in mainland Chinarose by 8%. Throughout the year growth in
K-gold (18-carat gold often with Italian-
inspired design) grew rapidly, with its share
of total gold jewellery rising from 12% to
around 15%, despite the fact that it was only
fully promoted in three main cities, although
the winter months experienced the usual
slow-down for this category. The traditional
24-carat (chuk kam) jewellery also performed
well due in part to rising rural incomes.
Demand for jewellery in Q4 was less affect-
ed by the sharp rise in the price than in
some other countries and buying in Q4
remained higher than Q4 2004, in part as
the rising price favoured the investment
motive for buying (particularly important for
chuk kam). Nevertheless the sharp rise did
have some impact, particularly on the trade;
retailers and manufacturers tended to buy
smaller quantities more frequently in order
to reduce their exposure to the price risk.
Thus the overall year-on-year growth for the
quarter fell to 2% (a figure which may hide
some implicit de-stocking by retailers) com-
Gold Demand Trends
9F E B R U A R Y 2 0 0 6
Q4 2004 Q4 2005 % change Q4 2005 vs Q4 2004
JewelleryNet retail
invest. Total JewelleryNet retail
invest. Total JewelleryNet retail
invest. Total
India 137.3 28.8 166.1 67.4 30.0 97.4 -50.9 4.2 -41.4Greater China 71.7 4.8 76.5 72.1 5.0 77.1 0.6 4.3 0.8China 62.2 4.0 66.2 63.4 4.8 68.2 2.0 20.2 3.1Hong Kong 3.1 0.3 3.4 2.8 -0.2 2.6 -9.8 -23.6Taiwan 6.4 0.5 6.9 5.9 0.4 6.3 -7.5 -20.0 -8.4Japan 8.5 20.7 29.2 8.6 11.0 19.6 0.9 -46.9 -33.0Indonesia 18.1 0.5 18.6 16.4 0.2 16.6 -9.1 -60.0 -10.5Vietnam 8.0 7.0 15.0 7.0 1.0 8.0 -12.5 -85.7 -46.7Middle East 77.2 4.1 81.3 73.7 3.5 77.2 -4.5 -14.0 -5.0Saudi Arabia 30.5 1.1 31.6 29.5 1.4 30.9 -3.3 27.3 -2.2Egypt 17.6 0.1 17.7 16.3 0.3 16.6 -7.4 150.0 -6.5UAE 17.6 1.5 19.1 16.5 1.0 17.5 -6.3 -33.3 -8.4Other Gulf 11.5 1.4 12.9 11.4 0.9 12.3 -0.8 -38.0 -4.7Turkey 36.8 8.3 45.1 30.6 5.5 36.1 -16.7 -33.8 -19.9USA 155.2 5.8 161.0 152.2 10.0 162.2 -1.9 72.2 0.7Italy 39.8 39.8 36.6 36.6 -8.0 -8.0UK 37.1 37.1 30.8 30.8 -17.0 -17.0Europe -0.4 -0.4 -0.7 -0.7 Total above 589.6 79.6 669.2 495.4 65.5 560.9 -16.0 -17.7 -16.2Other & Stock Ch. 209.9 16.4 226.3 187.8 12.1 199.9 -10.5 -26.1 -11.7Total inc. others 799.5 96.0 895.5 683.2 77.6 760.8 -14.5 -19.2 -15.0
Source: GFMS Ltd 1 Provisional 2 Jewellery only 3 Net retail investment only
Table 5: Consumer demand in selected countries (Q4)
8/14/2019 GDT Q4 FY 2005 Briefing Note
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pared to 10% for the first three quarters. The
strong economy, the success of K-gold and
the growth in the numbers of people willing
and able to buy high-quality jewellery
should support demand growth in 2006,
particularly once the price stabilises. TheYear of the Dog is also considered general-
ly auspicious for weddings (unlike the pre-
vious Year of the Rooster) and this should
help chuk kam in particular.
Net retail investment grew by a fifth in 2005,
in part due to the attraction of a rising gold
price but primarily due to the progress in
deregulation. From the end of 2004 banks
were able to sell bars and coins to cus-
tomers but development of this market was
hampered until November 2005 by uncer-
tainty over the tax treatment of such trade.
This issue has now been resolved but it is
taking a little while for this market to be
developed and the product offering so far
is limited.
Jewellery demand in Hong Kong grew
steadily in the first half of the year but was
affected by the rising price in the third and,
in particular, the fourth quarter. In addition
the first part of the year saw better econom-
ic conditions and generally favourable con-
sumer sentiment. This also changed in the
second half with rising interest rates and a
slow-down in the stock market and proper-
ty prices. Jewellers experienced substantial
selling-back of old jewellery by their cus-
tomers, and at times they actively promoted
the exchange of old jewellery for new.
Substantial selling back also affected theretail investment market during Q4.
Prospects once the gold price stabilises
look better. Hong Kong should continue to
benefit from the rapid growth of China while
the wave of selling back of jewellery will
come to a natural end. Consumers will, as
always, adapt to the high gold price and the
Year of the Dog will help boost the number
of marriages.
Consumption in Taiwan rose by 13% in
2005 compared to 2004 with net retail
investment more than double that in 2004
(albeit the comparison is with a low base)
and jewellery 8% higher. Following many
years of decline, gold consumption
appears to have turned the corner with first
the year 2004 showing recovery from the
2003 trough in both jewellery and net retailinvestment, and then further gains in 2005.
As in many other countries this underlying
upward movement was overlaid with price
volatility effects. Both jewellery and invest-
ment showed the usual pattern of strong
growth in the first half year, stagnation for
jewellery with slow growth for investment in
Q3, and then year-on-year falls in Q4.
K-gold has improved jewellery offtake in
Taiwan as it has in China and 2005 also
benefited from being, in this case, a rela-
tively auspicious year for marriages
although demographics and consumer
trends appear to be keeping marriages on
a downward trend. (2004 had the lowest
number of weddings since records started
in 1975 with only a small recovery in
2005.) The growth in jewellery offtake is
therefore primarily due to reasons other
than marriage.
Net retail investment rose in 2005, although
Q4 saw a lot of selling back prompted by the
rising price. In general there is still limited
interest in gold as an investment in Taiwan
due partly to a lack of appropriate products
(Central Trust of China is the only bank offer-
ing bars and coins) and partly to a lack of
demand. Interest in gold as an investment,
apart from underpinning arbitrage dealings,
is currently limited to the more old-fashionedinvestor or to the very sophisticated and
well-informed who have access to profes-
sional information concerning the use of
gold in an investment portfolio.
Other East Asia
Gold trends in Japan in 2005 differed from
those in other countries. Jewellery
demand started the year running below
2004 levels, suffering from weak consumer
spending generally and from successful
marketing of competing products.
Although overall demand for 2005
remained below that for 2004, by the
fourth quarter the improvement in con-
sumer sentiment resulted in a cautious
increase in offtake compared to a year ear-
lier. Imports from Italy benefited although
domestic fabrication was affected by the
rising price.
Net retail investment experienced a strong
first quarter, but, in the absence of any
economic or financial crisis which would
have resulted in consumers turning to
gold, was affected throughout the year by
the rising price (the yen price of gold rose
faster than the dollar price see figure 1)
which prompted an increasing amount of
selling back. This was, inevitably, particu-
larly true of the fourth quarter. However
while attention was focussed on the lively
activity on the TOCOM futures market,
there were also signs of younger investors
taking an interest in physical gold.
Traditionally, buyers of bars and coins in
Japan have been older investors who buy
with retirement bonuses or with inheri-
tance in mind; although they are price sen-
sitive (buying at the lows and selling on a
rising price) they are often also long-term
holders. The younger investors who are
starting to buy physical gold are typically
more wealthy individuals, who may also
have benefited from the recovery in the
Japanese stock market in 2005, and are
interested in gold as a purely speculative
instrument or in its diversification benefits
but lack the traditional affinity towards gold
of the older investor. Nevertheless their
new interest in the metal in Q4 probably
prevented the net investment figure fromturning negative.
The first weeks of 2006 have seen similar
trends in retail investment to the end of
2005. Nevertheless with interest in the
metal high, any substantial dip in the price
is likely to prompt renewed net inflows.
As explained on page 4, the substantial
inflow of physical gold into Japan in
December appears to have been primarily
caused by the need for financial houses to
underpin their trading positions.
Gold Demand Trends
1 0F E B R U A R Y 2 0 0 6
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Demand in Indonesia suffered greatly
from the rising price in the second half of
2005 with the increase in the dollar price
accentuated by the depreciation of the rupi-
ah. Both jewellery and investment buying in
Indonesia are very sensitive to price move-
ments. During the second half of the year
the rupiah price started to exceed even the
exceptional levels seen during the worst of
the 1997/98 Asian crisis (see figure 5) and
the impact on gold buying was inevitable.
Jewellery demand in Vietnam set a new
record reaching 27 tonnes, 3 % higher than
in 2004. As in many other countries, jew-
ellery demand was strong in the first half of
the year, close to year-earlier levels in Q3
and then fell in Q4 due to the rising price.
Within Q4, demand was still relatively
strong in the first part of the quarter due to
the wedding season but it was hit by the
very sharp price rise in December.
Net investment fell to just one tonne in the
quarter, the lowest figure since the lastquarter of 1999. Imports fell to very low
levels due to the extensive amount of sell-
ing back by investors in order to realise
profits and it is reported that a certain
amount of gold was smuggled out of the
country to Singapore via Cambodia as
gold prices in Vietnam were at a discount
to the international price.
In January there were signs that jewellery
buyers were becoming used to the higher
price and buying resumed under the impe-
tus of the Tet New Year at the end of the
month. Investment buying remained low in
January but, with stocks reaching very low
levels, it is expected that imports will
resume in February and March.
Middle East and Turkey
For 2005, demand was also strong in theMiddle East with a 9% growth overall for the
region and a new record for jewellery off-
take in the UAE (96 tonnes). Booming
economies, better products and promotion
underpinned offtake for much of the year
until the rising price in the last weeks cur-
tailed demand. The impact of the price rise
was felt mainly in the last few weeks of the
year; the initial price rise from August to
early November had less impact in a region
where inflation generally was high and
incomes were also rising.
Saudi Arabia showed the strongest growth
overall for the region with jewellery demand
rising by 12% and overall demand by 13%.
The fact that the Saudi-isation process of
jewellery retailers, which had limited offtake
in 2004 due to problems of finding sufficient
qualified staff, had largely worked through
contributed to this rise on top of the effect of
the strong economy. So too did the liberali-
sation measures announced in March
which reduced duty on imported jewellery,
relaxed the Saudi-isation rules, and permit-
ted jewellery exhibitions to be held for the
first time. The impact of the price rise in Q4
was also more muted in Saudi Arabia than
in the rest of the region with jewellery
demand dropping by just 3%.
In addition to the generally booming econo-my and increased promotion, UAE offtake
also benefited from a substantial increase in
tourism throughout the year. The price rise of
the last few months affected 22 carat jewellery
(essentially the Indian market) primarily. More
basic and less stylish jewellery also suffered,
in part as the buying power of lower-income
groups was more affected by inflation. Buying
of more stylish jewellery was less affected.
Jewellery buying in the rest of the Gulf
region was 5% higher in 2005 compared to
2004 with the price rise in Q4 having only a
limited impact on buying.
Recovery in the Egyptian economy and
prices which, until October, remained below
peak levels reached in late 2004, coupled
with attractive new designs and related
advertising campaigns for 21-carat
jewellery, supported jewellery buying formuch of the year. However, offtake in the
fourth quarter was adversely affected by the
surging price.
Retail investment in the Middle East is very
small with coins and small bars bought
mainly as gifts or used as jewellery; price
drivers are therefore broadly similar to jew-
ellery. Thus trends were generally positive
in the first three quarters of the year, sup-
ported in addition by new coins in certain
markets, but offtake in the UAE and the Gulf
fell in the fourth quarter.
Demand in the Middle East region was
weak in the first part of 2006. In addition to
the impact of the higher price, consumer
buying generally was affected by the
deaths of, and official mourning periods for,
the Ruler of Dubai and the Emir of Kuwait,
and later by the Ferry tragedy in Egypt. The
Hajj pilgrimage in Saudi Arabia was also
marred by a number of deaths. January off-
take is thought to have been 30% lower
than a year earlier with the Dubai Shopping
Festival and the normal buying for the Eid al
Adha adversely affected.
Overall offtake and jewellery buying in
Turkey set new records for the third year in
succession; coin offtake was a record for the
fourth successive year. Successful and
Gold Demand Trends
1 1F E B R U A R Y 2 0 0 6
Figure 5: Gold price in Indonesia,(000 rupiah/oz, monthly averages)
0
1,000
2,000
3,000
4,000
5,000
Jan-95 Jan-98 Jan-01 Jan-04
Figure 6: Gold demand in Turkey,1992-2005 (tonnes)
0
50
100
150
200
250
300
1992 1995 1998 2001 2004
Net retail invest.
jewellery
Source: GFMS Ltd
8/14/2019 GDT Q4 FY 2005 Briefing Note
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increasing promotion, attractive new
products and an improving economy have
underpinned this success story over the past
three years.
Like many countries, Turkish demand is sus-ceptible to price volatility. The first three quar-
ters were strong but the fourth quarter saw a
fall in both jewellery and net retail investment
compared to a year earlier. In addition
Ramadan, which in Turkey is normally the
slowest buying period of the year, also fell in
the first part of the fourth quarter. 2006 has
started slowly with the combination of
volatile prices, a weeks holiday for the
Feast of Sacrifice, and severe snow-
storms. As in other countries the underlying
momentum for gold buying is strong, and a
gently rising gold price also encourages pur-
chase, but a period of less volatile prices is
required for demand to reach its full potential.
Europe
Europe has remained the exception to the
generally positive story for gold demand in
2005. Jewellery buying was lower than in
2004 in both Italy and, even more so, in the
UK with the fourth quarter showing little
change to the pattern established in the rest
of the year. The Italian economy is not per-
forming well and consumer confidence is
facing economic and political uncertainties
which are worsened by the spring politicalelections. Italy is re-positioning its gold jew-
ellery production at a higher value added in
terms of design and quality; companies fol-
lowing this line are generally doing well
while the more mass-market manufacturers
are bearing the brunt of the downturn.
In the UK consumer spending on discre-
tionary items generally was uncertain last
year in the face of concern over possible
rising interest rates, some higher taxes and
price increases for a number of essentials.
Jewellery as a whole suffered with hall-
marking of all items down by 17.2% in 2005
compared to 2004. Gold hallmarking was in
line with this general trend (number of
pieces down by 17.7%) and there was little
difference, as regards the number of articles
hallmarked, between the performance of
the mainstream 9-carat market and the
more stylish and higher quality 18-carat
market. However when the weight of arti-
cles hallmarked is considered the decline in
18-carat (down 10%) was less sharp than
that of 9-carat pieces (down 25%). Over the
past five years 18-carat jewellery has gener-
ally performed better in the UK than 9-carat;the number of 18-carat articles hallmarked
has changed little over the past 5 years
while the number of 9-carat articles has
fallen by 30%.
USA
In tonnage terms US jewellery demand in
2005 was slightly higher than in 2004 the
first year since 2001 not to show a decline
in offtake. Multiplying the volume in tonnes
by the average dollar gold price implies a
9% rise in the value of the gold content.
However, the actual increase in value at the
retail level is of more relevance for the US;
because the value of the materials is typi-
cally well under half the value of any piece,
the retail sales value will rise by less than
any increase in the gold price. The rela-
tionship between the retail price and the
underlying gold price is also muted since
major retailers contract their purchases at a
Gold Demand Trends
1 2F E B R U A R Y 2 0 0 6
Tonnes $bn
JewelleryNet retail
investmentETFs &similar
Industrial &dental Jewellery
Net retailinvestment
ETFs &similar
Industrial &dental
1998 3,164 263 - 393 29.91 2.49 - 3.721999 3,133 359 - 412 28.06 3.22 - 3.692000 3,201 166 - 451 28.72 1.49 - 4.052001 3,004 357 - 362 26.17 3.11 - 3.162002 2,656 340 3 357 26.44 3.38 0.03 3.552003 2,478 292 39 380 28.94 3.41 0.46 4.44
2004 2,618 343 133 410 34.44 4.52 1.75 5.392005 2,736 396 203 418 39.10 5.66 2.91 5.98
Q103 531 67 2 93 6.01 0.76 0.02 1.05Q203 614 67 3 97 6.84 0.74 0.03 1.09Q303 591 67 6 93 6.90 0.79 0.07 1.09Q403 742 91 29 97 9.33 1.14 0.36 1.22
Q104 577 83 16 101 7.57 1.10 0.22 1.33Q204 637 87 5 109 8.06 1.09 0.06 1.37Q304 605 77 -2 101 7.80 1.00 -0.03 1.30Q404 799 96 113 99 11.15 1.34 1.58 1.39
Q105 693 124 89 98 9.53 1.71 1.22 1.35
Q205 740 109 -2 112 10.17 1.50 -0.02 1.53Q305 619 85 38 105 8.76 1.20 0.53 1.49
Q405 683 78 79 103 10.64 1.21 1.23 1.61
Source: Tonnage data are from GFMS Ltd. Value data are WGC calculations based on GFMS data. Data for 2005 and Q4 2005 are provisional.
Table 6: Historical data for gold demand
8/14/2019 GDT Q4 FY 2005 Briefing Note
13/14
hedged gold price in order to lock in price
points.
Data for the first nine months of the year
from retail audits indicate that the retail
value of gold jewellery bought rose by3.9% up from 2.7% in the corresponding
period of 2004 and consistent with the
turnaround in volume increase indicated by
the GFMS numbers. Full year figures will
not be available until April but reports from
the trade suggest that the increase for 2005
as a whole will be around 5% the highest
growth rate of the past four years.
While the sharp rise in the price of gold dur-
ing the final months of the year had
little impact and what impact there is will
be delayed on jewellery sales, the US had
its own problems during the fourth quarter
with consumer spending on discretionary
items tempered by the effect of the rise in
energy prices on disposable income in the
wake of high oil prices and the hurricanes.
Growth in overall consumer spendingremained positive in the quarter but decel-
erated. Retailers experienced a mixed
Christmas selling season. Jewellery sales
as a whole were reported to have been
lower than in 2004 but sales of gold jew-
ellery appeared to have increased in retail
value terms. In tonnage terms the more dif-
ficult climate appears to have caused a
small fall in the quarter as a whole com-
pared to the last quarter of 2004.
Yellow gold is increasingly the driver of gold
sales. As throughout 2005, the more inno-
vative jewellers, in both the fashion and
mass-market sectors, are performing well.
Market research carried out towards the
end of 2005 showed positive shifts in senti-
ment towards gold jewellery and in future
purchasing intent. The rise in the gold priceand the news coverage of it has also helped
increase both consumer awareness and
recognition of the lasting value of gold jew-
ellery purchase. Gold jewellery should
therefore be well placed to grow its share of
consumer spending during 2006.
The growing interest in gold as an invest-
ment also had its impact on retail purchas-
es of bars and coins. This reached 10
tonnes in the fourth quarter, the highest
quarterly figure since the beginning of 2003
and 72% higher than a year earlier.
Gold Demand Trends
1 3F E B R U A R Y 2 0 0 6
All statistics (except where specified)
are in weights of fine gold.
Tonne= 1,000 kg or 32,151 troy oz
of fine gold.
Na = not available
= not applicable
Mine production. Formal and informal
output.
Net producer hedging. The change in
the physical market impact of mining com-
panies gold loans, forwards and options
positions.
Official sector sales. Gross sales
less gross purchases by central banks and
other official institutions. Swaps and the
effect of delta hedging are excluded.
Old gold scrap. Gold sourced from old
fabricated products which has been recov-
ered and refined back into bars.
Jewellery. All newly-made carat jew-
ellery and gold watches, whether plain
gold or combined with other materials. It
excludes second-hand jewellery, other
metals plated with gold, coins and bars
used as jewellery and purchases funded
by the trading in of existing jewellery.
Retail investment. Individuals pur-
chases of coins and bars defined accord-
ing to the standard adopted by the
European Union for investment gold.
Medallions of at least 99% purity, wires and
lumps sold in small quantities are also
included. In practice this includes the initial
sale of many coins destined ultimately to
be considered as numismatic rather than
bullion. It excludes second hand coins and
is measured as net purchases.
Consumer demand. The sum of jew-
ellery and retail investment purchases for a
country ie the amount of gold acquired
directly by individuals.
Industrial demand. The first transfor-
mation of raw gold into intermediate or final
products destined for industrial use such
as gold potassium cyanide, gold bonding
wire, sputtering targets. This includes gold
destined for plating jewellery.
Dental. The first transformation of raw
gold into intermediate or final products
destined for dental applications such as
dental alloys.
Tourist purchases and luggage
trade. Purchases by foreign visitors
which are normally for their own use or for
gifts are included in demand in the coun-
try of purchase. Bulk purchases by foreign
visitors (luggage trade) which appear to
be intended for resale in the visitors coun-
try of origin or a third country are attributed
to the country in which they are resold.
Revisions to data. All data may be
subject to revision in the light of new
information.
Historical data
Data covering a longer time period will be
available on Bloomberg from February
27th; alternatively contact GFMS Ltd (+44
(0)20 7478 1777; gold@gfms.co.uk).
Notes and definitions
8/14/2019 GDT Q4 FY 2005 Briefing Note
14/14
Gold Demand Trends
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Council (WGC) commentary and analysis based on gold supply and demand statistics compiled
by GFMS Ltd for the WGC along with some additional data. See individual tables for specific
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herewith has no regard to the specific investment objectives, financial situation or particular needs
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