Gold, sought after by women for jewelry and by investors for its safe-haven role, has responded to a changed world.
The general world economic slowdown before and after the Sept. 11 terrorist attacks reduced the 3rd quarter gold demand. This reduction affected negatively gold jewelry but positively gold bars investment whose prices suddenly increased after the tragic events. “The overall result is a whole demand drop of two percent for the first three quarters compared to the same period of 2000.
“A number of factors influenced the 3rd quarter gold demand in Saudi Arabia, but the negative effects of reduced tourism and Umrah pilgrimages in the wake of the world events dominated over the positive results of steady oil prices and economic liberalization measures. The overall result was a drop of eight percent on 3rd quarter 2000 to 45.5 tons,” the World Gold Council (WGC) has said in this quarter’s edition reflecting on gold demand trends.
Trends in gold demand responded to global events in the 3rd quarter of 2001, both before and after the terrorist attacks of Sept. 11. “Reactions were, however, uniform throughout the world with different effects seen in different countries. However, the gross demand from the beginning till the end of the 3rd quarter settled at 169.5 tons; a decrease of only one ton — 0.6 percent, compared to the same period of 2000 (3rd quarter of 2000 was 170.5 tons),” Usama Alwazir, the WTC representative for the Kingdom and the rest of the Gulf, said.
He added: “The gold demand for the 3rd quarter in the Gulf, including the Kingdom, drop usually every year because of summer vacations and the start of academic year. In addition, world events influenced everybody, including the people who come for Umrah.”
Alwazir said: “Steady gold demand in the Kingdom has been affected by the closing of several shops due to the new manpower regulation highly recommending employment of Saudi nationals. But Interior Minister and Manpower Council Chairman Prince Naif, sympathizing with the majority of gold shop owners modified it for a three-year gradual application.”
Quoting a majority of gold traders in this part of the world, Alwazir clarified: “A substantial increase of gold demand in the current 4th quarter is expected in the region because of Ramadan, Eid Al-Fitr and the end of 2001 marked by the seasonal holiday, which will reduce the effects of the 3rd quarter drop.”
Demand for gold in other Gulf states dropped as a whole by six percent to 32.2 tons, although the UAE was a resilient performer, managing a one percent increase on 3rd quarter 2000 to 17.5 tons. Bahrain and Kuwait accounted for the majority of the decrease with demand down by 19 percent and 18 percent respectively, while Oman dropped four percent and Qatar was down six percent. However, the gross demand in the Gulf is still high at six percent for this year compared with the same period of 2000.
Gold demand in Egypt for the 3rd quarter of 2001 was relatively steady at 31 tons, against 32.5 tons for the same quarter of 2000. Although a fall of five percent, in the light of recent events, the market was reasonably well contained. A drop in tourist figures was largely responsible for the decrease, although the continued domestic process of privatization and economic deregulation helped to prevent a deeper slide. “Despite the global economic slowdown and the repercussions of the Sept. 11 terrorist attacks, especially its effect on tourism and Umrah season, the demand on gold in the Middle East and other countries remains high for the first nine months of this year compared to the same period of 2000. Besides, all countries reflect confidence in the positive and encouraging results with respect to gold demand for the 4th quarter of this year,” WGC’s Middle East Regional Director Moaz Barakat said commenting on the general results of gold demand for the 3rd quarter in the region.
In India, the leading gold consumer in the world, demand was 171.9 tons in 3rd quarter, 17 percent lower than the 208 tons recorded in the same period last year. However, with the strong first half of the year, demand for the first three quarters was six percent higher than that in the corresponding period of 2000. Two factors primarily accounted for the 3rd quarter decline. First, there was a longer than usual period. Second, the price volatility that occurred after Sept. 11 (with the initial rise in the dollar price aggravated by the effect of a depression in the Indian rupee against the dollar) deterred purchases and delayed merchants building up their stocks in anticipation of the festival and wedding seasons, which occur later in the year. Official imports totaled 99.1 tons compared with 116.4 tons in 3rd quarter.
The political and economic consequences of Sept. 11, coupled with the rise in the dollar gold price and following already slow demand, resulted in a 34 percent drop in gold demand in Pakistan from 32.4 tons in 3rd quarter to 21.3 tons. After a lackluster first half of the year, demand for the first three quarters totaled 72.9 tons, a 17 percent decline from the year-earlier period.
The removal of state control over retail jewelry price helped gold demand in China to rise nine percent from year-earlier levels. Hong Kong gold jewelry demand slipped 0.3 tons from a year ago to 5.2 tons. Taiwan was the weakest performer in the region during 3rd quarter, continuing the trend seen so far this year. Gold demand for the quarter declined 37 percent from 3rd quarter, a fall largely accounted for by a 40 percent year-on-year fall in purchases of gold jewelry to 11 tons.
Demand surged in Japan rising 37 percent on the back of a 91 percent increase in investment purchases. This trend to higher investment was already evident before Sept. 11 but was reinforced by the global crisis. The weak economy resulted in a seven percent fall in jewelry demand but this was tempered by a continuing shift ward yellow gold jewelry away from platinum.
Despite the effect of the global slowdown on many economies in East Asia, demand for gold rose strongly, for a combination of reasons, in Vietnam, Indonesia, Malaysia and South Korea. However, demand fell in Thailand and Taiwan.
In the US the economic slowdown and the sharp reduction in consumer spending after the terrorist attacks resulted in a two percent fall in jewelry demand. The reduction was more than offset by a surge in purchases of gold coin after Sept. 11. Coin sales in the quarter were five times the level attained in the 3rd quarter 2000.
Jewelry demand in euro zone countries remained stable although demand in the UK was seven percent higher than a year earlier. In Germany there was strong demand for the Deutsche mark commemorative coin issued in July.
Sept. 11 and its aftermath will continue to affect gold as it will continue to affect many other aspects of current life. “The impact is, nevertheless, multifaceted just as the use of gold is multifaceted. The safe-haven role of gold has grown in importance but other factors have dampened demand,” WGC stated.
