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Gold: demand from financial sector higher than from jewellery manufacturers

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Les echos
Published
today May 27, 2009
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Expected for the past few quarters, the turning point was finally reached between January and March. The demand for gold as a means of financial investment has exceeded the level of demand from the jewellery industry, according to the latest reports by the World Gold Council (WGO).



In the first quarter, consumption of gold for jewellery dropped by almost a quarter from the previous year, to just 339 tonnes. “The demand for jewellery has decreased just as much in the East as in the West, with the only notable exceptions being China and Hong Kong”, clarified the economists of the Council. The reason? Rising prices of course play a part, but also an increase in sales by individuals in many countries, including India.

“Gold plays a unique role as a means of investment in many countries”, the report explains. The descent in other sales has been even more abrupt in the dental industry, electronics and other manufacturing sectors, down 31% to 80.2 tonnes.

Good news has only come from the demand for gold as a means of investment, which has seen a four-fold increase in the first quarter compared to the same period in 2008, coming close to 600 tonnes. Investors have allowed “trackers”, and similar products, to triumph. By themselves, they represented 78% of the demand for gold for investment purposes between January and March 2008, and were mobilized 6.4 times fewer than in the first quarter of 2009.

France apart


Fears aroused by the gravity of the financial crisis have led to this craze. The simplicity of these financial products, which trade like stocks, and their transparency, because they mirror current price, have made the headlines. In contrast, ingots and coins have been neglected. France formed a separate group as it was confirmed as the "net buyer of bullion and coins for the second consecutive quarter."

The increased price of gold has been of a little benefit for mining production, which has grown 3% in a year, to 560 tonnes. Strengthened by these figures, the Council predicts that gold has a bright future. They are convinced that even if the economic situation improves, investors will turn again to gold to “protect themselves from the erosion of capital as a result of inflation”.

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