JEDDAH, 21 February 2007 — Consumer demand for gold in Saudi Arabia turned bleak in 2006 with a remarkable 20 percent decline in tonnage terms compared to 2005 results. However, on a quarterly basis, there was a sharp turnaround in the fourth quarter of last year, as demand for the yellow metal jumped by a hefty 15 percent, partly offsetting the 28 percent fall in the first three quarters. On top of that, the latest industry report said 2007 remains promising.
Though the economy in general was strong, the World Gold Council’s latest report said the effect on investors of the sharp decline in the Saudi stock market, high inflation, higher rents and reduced consumer purchasing power for discretionary goods such as jewelry combined with the price volatility, acted as a strong deterrent to gold purchase.
The WGC’s report on gold demand for fourth quarter and full year 2006 released by its regional office in Dubai yesterday, however, said market research findings show that sentiment toward gold jewelry in Saudi Arabia and key markets, remains strong and demand will increase if gold prices are not too volatile and, especially, if customs tariff is reduced to five percent — as it is now in other GCC countries.
Total gold demand in Saudi Arabia was 122.3 tons including a 23 percent increase in gold net retail investment.
In the UAE, demand was 10 percent lower in tonnage terms than in 2005. Total gold demand in UAE was 96 tons.
Demand in other Gulf countries was 12 percent lower for the year as a whole. In fourth quarter, demand was still four percent lower than a year earlier, although the drop was less severe than in the first three quarters. Total gold demand in these countries (Kuwait, Bahrain, Oman and Qatar) was 45.3 tons.
The Egyptian market also continued to struggle in fourth quarter, with demand three percent lower than a year earlier in tonnage terms, though this was a much better performance than the first three quarters when demand fell by 25 percent.
The jewelry market in Turkey, as in other countries, performed better in fourth quarter than in the first three quarters, with offtake four percent higher than a year earlier, reducing the full-year fall to 15 percent.
The outlook for 2007 gold demand in the region looks promising in both retail investment as well as in jewelry, provided the price is not too volatile, the report said.
“Moreover, the region’s strong economies, the expansion of major jewelry companies as well as the increase of promotional and marketing spending on gold jewelry would “help improve the gold jewelry demand,” said Moaz Barakat, WGC’s managing director for the Middle East, Turkey and Pakistan.
“We are pleased by the record value of gold demand in 2006 in the region. Consumers are spending more on gold jewelry and on gold as an investment and save haven. However, there was also a decline in tonnage demand as extreme price volatility impacted consumers’ jewelry purchases, but we saw that more stable prices resulted in a good level of demand,” he noted.
As for the biggest gold consumers in the world, the trend varies.
In India, the number one gold consumer, gold net retail investment demand rose by 38 percent in 2006 compared to 2005 and fell by 14 percent in gold jewelry demand. Total demand in India in 2006 was 691.1 tons, four percent less than 2005.
In the United States, world’s second gold consumer, total gold demand was 336.1 tons, a fall of 11 percent decrease.
However, in China, total gold demand increased in 2006 by three percent reaching 259.6 tons, primarily due to increase in demand from investors, where net retail investment demand increased by 28 percent. Moreover, the jewelry industry in China is starting to become more sophisticated and diversified.