Record $53.6 Billion Demand for Gold in 2005

Figures released by the World Gold Council (WGC) yesterday reveal that consumers and investors pushed demand for gold to a record level of $53.6 billion, with all categories of demand (jewelry, industrial and investment) showing double-digit year-on-year growth in dollar terms. Despite rising gold prices, jewelry demand rose 5 percent to 2,736 tons.

According to the figures independently compiled for the WGC by GFMS Ltd, overall jewelry demand in 2005 was 5 percent higher than 2004 in weight and 14 percent higher in value. New annual demand records were set in 2005 in UAE, Vietnam and, for the third successive year, in Turkey.

In tonnage terms, double-digit increases were seen in India (up 14 percent) and Saudi Arabia (up 12 percent) with solid increases of around 6 to 8 percent in China, Taiwan, UAE and Turkey for the year as a whole.

• India: overall consumer demand in India in 2005 was 17 percent higher in weight than the year before. In rupees, this was equivalent to a 25 percent increase bringing the value of gold demand in India to a second successive annual record.
• Jewelry demand also experienced a second successive annual record of over 20 percent in rupees. This translated to an increase of 14 percent in tonnage terms, totaling 589 tons

• China, Hong Kong & Taiwan: The buoyant Chinese economy and the success of the K-gold (18K gold often with Italian-inspired design), jewelry promotion saw consumer demand in Mainland China rise by 8 percent in weight last year, with an 8 percent increase in jewelry off take and a 20 percent rise in net retail investment.
• Demand for jewelry in the fourth quarter was less affected by the sharp rise in the price than some other countries and buying in Q4 was higher than Q4 2004, in part because the rising price favored the investment motive for buying jewelry, in particular the traditional 24 carat pieces.
• Throughout the year, growth in K-gold grew rapidly, with its share of the total market rising from 12 percent to around 15 percent although the winter months have experienced the usual slow-down for this category.

• UAE and the Gulf: the booming economy, high tourist numbers, heavy trade and sustained WGC promotion led to an 8 percent increase in jewelry demand in the UAE over the year as a whole despite a fall in the fourth quarter. Jewelry buying in the rest of the Gulf region was 5 percent higher in 2005 compared to 2004 with the price rise in the fourth quarter having only a limited impact on buying.

• Saudi Arabia: Saudi Arabia showed the strongest growth in the Middle East with jewelry demand rising by 12 percent and overall demand by 13 percent during the year. The effect of a strong economic backdrop and a relaxation of Saudi-isation rules for jewelry shops, which can now employ one foreign worker per outlet, and a liberalization of rules on imported jewelry and jewelry exhibitions contributed to this rise.
• The impact of the price rise in the fourth quarter affected Saudi Arabia less than the rest of the region with jewelry demand dropping by just 3 percent compared to the fourth quarter in 2004.

• U.S.: In tonnage terms, US jewelry demand in 2005 was slightly higher than in 2004 – the first year since 2001 not to show a decline. The retail value of items purchased is expected to have risen by 5 percent, the highest growth rate of the past four years.
• Yellow gold is increasingly the driver of gold sales. As throughout 2005, the more innovative jewelers, in both the fashion and mass-market sectors, are performing well. Market research carried out towards the end of 2005 showed positive shifts in sentiment towards gold jewelry and in future purchasing intent.

James Burton, chief executive of WGC, said, “2005 has been a momentous year for gold demand, with record levels of consumer demand in dollar terms and a simultaneous surge in institutional investment. It is clear both from the success of the gold backed ETFs [Exchange Traded Funds] as well as our own marketing to financial audiences that long-term investors are increasingly taking advantage of the investment benefits of gold.

“Similarly our jewelry marketing program is paying real dividends, and it is gratifying to see that those markets where we are most active also tend to be those markets that have seen the most growth. We have built up a real momentum in 2005 and must continue our marketing and promotional work in the future to ensure that similar levels of growth are seen in 2006 and beyond.”

According to the WGC, gold purchasing in 2006 is continuing in a similar pattern to the end of 2005 with price volatility leading to a stronger demand for institutional investment in gold but a cautious approach to jewelry purchasing. Long term jewelry demand is expected to recover and to resume growth once the price has stabilized.