JEDDAH, 5 May 2003 — Saudi Arabia’s gold and jewelry traders are optimistic about their performance this year. If they did not perform as expected last year, that was due to fluctuating gold prices caused by political tensions in the region.

“The recent Iraq crisis was marked by fluctuations in gold prices in Saudi Arabia and throughout other parts of the Middle East. The trend was the same in the year 2002 when the rising gold price graph, coupled with reduced consumer confidence as a result of political tensions, restrained jewelry purchases. These were uniformly slightly lower than a year earlier in tonnage terms, although higher in value terms,” says Usama Alwazir, Gulf manager of the World Gold Council (WGC). According to him, the Kingdom accounts for an annual production of 120 tons of jewelry. Twelve to 15 percent of manufactured jewelry is exported to parts of the Gulf and the Middle East, including Palestine and Lebanon. “Meanwhile, high gold prices encouraged the generation of scrap, reducing demand for new gold during the year,” he says in reference to the fourth quarterly 2002 review of the WGC.

Continuing economic problems in Egypt also limited jewelry demand and resulted in further high levels of scrap. Turkey continued to struggle to achieve full economic recovery and uncertainty over the November election added to the political tension over Iraq, again restraining purchases. “In contrast, retail investment demand was higher than a year earlier in both Saudi Arabia and the rest of the Gulf,” he points out.

Demand for gold in the fourth quarter continued the improving trend shown in the quarter before. In tonnage terms, demand was three percent lower than a year earlier while in dollar terms it was a substantial 12 percent higher. The weaker results from the first half of the year meant that demand for 2002 as a whole was nine percent below that of 2001 in tonnage terms, but the dollar value was four percent higher.

Like in the previous quarter, the fourth quarter was marked by a slow increase in interest in gold as an investment. All reports and available indicators suggest that this gathered momentum in the first weeks of 2003, as political tensions increased, stock markets remained depressed, the global economy remained troubled and fears grew of further falls in the dollar. However, the rise in the gold price meant that many retail investors took profits.

The jewelry market showed consistent improvement throughout the year, although the rise in price meant that fourth quarter demand was still four percent below year-earlier levels in terms of tonnage. Industrial demand was unchanged from a year earlier with growth in East Asia (excluding China) offset by weakness elsewhere. Jewelry demand in many markets is adversely affected by price volatility, and demand in the first quarter was, almost certainly, constrained.

The history of the past two years has shown that buyers return once the price is perceived to have stabilized; with global economic recovery weak, price movements will be the dominant determinant of jewelry demand in 2003. The political climate is likely to remain supportive of investment demand but the level of interest may prove erratic as a result of shifts in political, economic and price factors.

The WGC review points out that investor interest appears to have leveled off at the beginning of the fourth quarter but recovered later on. With the increase in political tension, further falls in stock markets and renewed fears over the dollar; there was a further increase in the early weeks of 2003.

Overall industrial demand was unchanged from a year earlier in tonnage terms (up 16 percent in value terms), an interruption to the improving trend seen in the previous two quarters. Once again growth was concentrated in East Asia. In particular there was strong demand from the electronics industries in Japan and South Korea with good demand for gold components for use in color mobile phones.