Gold Starts to Glisten Again

After a five year downturn, gold is regaining its sparkle, with global demand for jewelry soaring upward by 17 percent in 2013, the largest volume increase since 1997, with full-year demand hitting 2,209 metric tonnes, according to the World Gold Council’s 2013 report, released earlier this week. Global gold trading, according to the Hong Kong-based financial analysis firm Asianomics, "is undergoing an incredible transformation. Vast quantities of physical gold bullion have moved from West to East, with China emerging as the number-one buyer and demand in recent years, quite literally accelerating off the charts." Gold purchases by nation – and share prices are sliding upward and beginning to reward the heartbreak suffered by perennial gold bugs. Whether that is built on sentiment or science is a long call. But in any case, the increase in gold purchases is partly due to a slowly recovering world economy in the face of what has been a bear gold market. Gold peaked in September 2011 at US$1,896 per ounce and has been on a largely downward course ever since, although it has started to correct in recent weeks. The volume increase, if not the price, also an indication that demand is continuing to shift from the west to the east, particularly with Chinese consumers, whose purchases rose by 38 percent annually and Indian ones who ignored import restrictions and increases in excise taxes as the government sought to curb purchases. It should also be noted that the formal gold market little reflects reality. Almost all of the gold exported from the Philippines is smuggled out without going through customs and excise. That is true of many other gold exporting nations as well. The Chinese buying spree is an indication of the rise of the 1.3 billion Chinese consumers, whose standard of living continues to rise and who increasingly are turning from basic consumer items such as food and clothing to luxuries. "We still see China in a long-term growth path and it will definitely make a major contribution to the market this year and more than likely could still be the largest gold market in the world by the end of the year," said Marcus Grubb, manager for Investment at the World Gold Council. The two countries remain the world’s biggest consumers of the precious metal – so much by Indian consumers that government economic planners say gold purchases are crippling the economy. India’s current account deficit for the June quarter was US$21.9 billion, or 4.9 percent of GDP – with US$16.5 billion of imports accounted for in gold bars, bullion and jewelry, meaning if gold purchases had been stripped out, India’s current account deficit would have been far more manageable. While gold is considered auspicious as a gift or offering at religious festivals, and forms an essential part of a bride's dowry, families amass it as both fashion accessories and as a cultural objective - as well as a hedge against economic disaster. India's Tirupati temple, considered one of the world's richest, is estimated to hold gold worth up to $80 billion. Despite the excise taxes, consumption demand in India rose by 16 percent to 362 tonnes of bars and coins. Full-year purchases in jewelry amounted to 613 tonnes, a rise of 11 percent over 2012. The new customs duties and stiffened import requirements have had little effect, driving up smuggling and obscuring the real data on imports. Overall, “2013 was characterized by a continuing shift in demand from west to east, and stronger jewelry, bar and coin purchases among consumers across the world, which helped to counterbalance the outflow from gold exchange-traded funds, which reduced purchases by 881 tonnes, according to the gold council’s Grubb. “The basic fundamentals of strong demand and constrained supply will continue to drive long term support for the metal,” Grubb said in a prepared release. Last year was a strong one for demand across sectors and geographies with the exception of western exchange-traded funds. Grubb called it the “year of the consumer. Although demand has continued to shift from west to east, he said, demand for gold bars and jewelry remains a global phenomenon. Central banks continued to be net buyers of the gold although at a lower level than in 2012 while technological demand remained steady at 405 tonnes as industry continued to use gold in a range of technological applications dominated by high-end electronics. Meanwhile in the tech sector, demand remained steady at 405 tonnes as industry continued to use gold in a range of technological applications. High end electronics dominated the figures at 282 tonnes.