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| Gold at 25-Year High May Decline as Indian Sales Drop |
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Falling demand for gold jewelry in India, the world's biggest consumer,
and the Middle East may cause the precious metal to drop from a 25-year high.
``We may see prices coming off,'' said Alastair McIntyre,
head of marketing at ScotiaMocatta, the bullion unit of the Bank of Nova Scotia, one of five participants in the twice-daily
trading sessions in London that sets world gold prices. ``We're seeing less demand for gold in jewelry,'' he said from Hong
Kong.
GFMS Ltd., a London-based consultant to the industry, last week cut its forecast for demand from jewelers in the
first half of this year, saying sales will plunge by 25 percent to levels last seen in the early 1990s. The precious metal
may drop to $490 an ounce as a result, GFMS said. Prices on Jan. 20 reached $568.10 an ounce in London, the highest since
1981.
Gold prices have risen for five straight years, the longest streak in three decades, because of growing investor
interest in commodities, rising energy costs and a weakening dollar that spurred demand for an alternative to stocks and bonds.
The jump increased profit at mining companies such as Denver-based Newmont Mining Corp. and renewed exploration from Mali
to Russia.
In India, sales have dropped by half because of high prices, said Ranjit Rathod, director at MNC Bullion Pvt.
Ltd. in Chennai, one of the two largest dealers in the nation's south. In China, jewelry purchases have slowed and may worsen
after the New Year holiday this month, said Cui Lin, gold analyst at Beijing Antaike Information Development Co., a government
research organization.
Middle East
Even in the Middle East, where economies are booming because of rising energy prices,
gold sales are down by about 20 percent, said Dilip Kumar, general manager at FA.V.OR Jewels Ltd., a wholesaler in Dubai who
exports to Saudi Arabia, Iran and Egypt.
``Buyers are not wanting to speculate'' on prices, he said in an interview.
Indians
buy gold for wedding gifts and to store wealth and are typically the quickest to delay purchases when prices gain, said Jill
Leyland, a London-based adviser at the producer-funded World Gold Council.
`It's the most price-sensitive country,'' she
said. The nation represents about 20 percent of gold jewelry demand.
Buyers in Thailand and Indonesia have the ``same
mentality'' as in India when prices rise, said Albert Cheng, the Singapore- based Far East managing director of the Council.
``They are holding back.''
Higher prices in Thailand will probably spur a decline in sales at the time of the Lunar New
Year at the end of January, normally a period when sales rise because of annual bonuses, according to Jitti Tangsithpakdi,
president of the country's Gold Traders Association.
Some Optimism
Worldwide, jewelry represents 69 percent of gold
demand, with investors representing 5.6 percent of the bullion market, according to GFMS. The rest goes into industrial applications,
is hoarded away or purchased by mining companies to buy back gold they had already contracted to sell.
The outlook for
lower prices isn't universal. Twenty-five of 39 traders, investors and analysts surveyed by Bloomberg News from Sydney to
New York on Jan. 19 and Jan. 20 said they expect gold prices to rise this week.
``Gold is a safe haven,'' said George
Gero, a vice president in New York at RBC Capital Markets, the biggest financial adviser last year in gold-mining mergers
and acquisitions, according to data compiled by Bloomberg. ``We have major political problems in Iran and energy problems
in Nigeria.''
Europe, U.S.
In Nigeria, oil workers last week threatened to stop working and withdraw from the Niger
River delta, the nation's main producing region, unless the government curbs violence. In Iran, a standoff over the nation's
nuclear program is increasing concern of a disruption to the nation's oil exports.
Gold demand in Europe and the U.S.
is holding up because retail prices are less affected by market swings than elsewhere, Leyland said.
``The mark-up for
gold jewelry in the U.S. and Europe is between 200 and 300 percent, so consumers will hardly notice a change in prices,''
she said. ``In some countries in the Middle East or in India, the mark-up is 30 percent. So people are very conscious of the
price.''
Gold demand in China, a country of 1.3 billion people and the world's fastest-growing major economy, hasn't declined
as much as other Asian countries.
Jewelers in China have raised gold prices by as much as 10 percent since the start of
this year to take advantage of the sales peak at Lunar New Year and to pass on costs to customers.
New Year
``Demand
has been affected, but not very significantly, mainly due to the approach of the New Year,'' said Cui Lin, gold analyst at
Beijing Antaike Information Development Co. ``I expect high gold prices will have a more serious impact on consumption after
the holidays,'' Cui said.
Rising incomes fueled by growth of more than 9 percent a year and a strengthening of the currency
have lessened the impact of higher gold prices in China. Analysts including Graham Birch from Merrill Lynch & Co. in London
expect China to overtake India as the largest consumer in five years.
Asian buyers of gold jewelry may return to the market
if prices look set to extend gains.
``Jewelry is also viewed as an investment item,'' said William Mollard, an Australian
government researcher. ``If people think gold will go up, they may even be prepared to buy at today's prices.''
Goldman
also raised its gold price forecast trading range to between $480 and $650 an ounce this year, compared with a previous estimate
of $450 to $550 an ounce.
Bloomberg/Bvom – 01/25/06 |
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