Gold demand surges 6% in Q4

Gold demand rose 5.7 per cent in the last three months of 2006, the first quarterly gain in more than a year, on increased purchases by jewelers and investors, the producer-funded World Gold Council said.

Consumption was 986.6 metric tonne of gold in the fourth quarter, from 933.6 tons a year earlier, the London-based council said today in a statement. The previous improvement was in the third quarter of 2005. Demand fell 9.9 per cent last year.

Jewellery demand in the fourth quarter rose 2.1 per cent and investment purchases climbed 19 per cent. Gold buying dropped in the first nine months of the year after prices soared to a 26-year high in mid-May, deterring jewelers and investors.

"If anything did surprise me it was just how strong demand became, particularly in countries such as India, when the gold price became more stable,'' Jill Leyland, the council's economic adviser, said in an interview yesterday in London.

"I'm also quite surprised by anecdotal reports in the last few weeks that even with rising prices demand in India and also the Middle East is pretty strong.''

Gold averaged $614.36 an ounce in the fourth quarter, down from the high of $730.40 on May 12. India, the world's biggest user of gold, used 207.7 tonne in the fourth quarter, more than double compared with a year earlier, based on figures from London-based research company GFMS Ltd., the council said. Purchases in Vietnam more than tripled. "In Vietnam, houses are priced in gold. So people will buy gold to save up for a house,'' Leyland said.

In the US, where demand dropped 18 per cent, the "lower end of the market'' was hurt by higher prices, Leyland added.

Purchases in Italy dropped 8.8 per cent because steel jewellery is becoming more fashionable, she said. In the UK, demand fell 18 per cent as consumers bought electronic goods rather than jewellery, Leyland said.

Exchange-traded funds backed by bullion attracted 84 tonne of investment, up 0.5 per cent from a year earlier. Demand in the funds was more than four times higher than in the third quarter, the first quarter-on-quarter gain since the start of 2006.

"If you look back a few years, nearly all the people buying gold were short-term speculator traders who were in and out of the market in a short time,'' Leyland said. "Right now you are getting many more long-term investors coming into gold.''

At least 35 pension funds, endowments and foundations own gold or plan to buy it, she said.

Gold supply fell 23 per cent to 883 tonne as central-bank sales were 41 tonne, from 162 tonne a year earlier. European central-bank sales of 395.8 tons in the 12 months ended September 26 fell short of the 500-ton limit, the council said.