Indians bought more gold in 2003

Gold continued to be in demand in India during 2003 though global gold prices soared to multiple-year highs. Indian gold demand increased 2.5 per cent in a year in which global demand fell 6 per cent. Indians were expected to buy more gold this year as the $400 and above price mark becomes acceptable.

The Gold Survey 2004 report released by UK-based GFMS pointed out that jewellery fabrication declined 6 per cent in 2003 to 2,533 tonnes but outlook in 2004 was bright as markets were expected to adjust to the higher price of gold.

Jewellery sales declined for the third year in a row in 2004. Sales were more than 20 per cent or nearly 700 tonnes less from sales reported in 2000.

GFMS director Paul Walker noted, "Surprisingly, whilst total jewellery fabrication fell, small gains were recorded in two of the most important gold jewellery markets - China and India. Rapid adjustment of consumers price expectations and robust economic growth fuelled in part by a good monsoon helped Indian demand rise 2.5 per cent".

Jewellery's share of annual gold demand dropped from 80 per cent to just over 60 per cent over three years even as gold price in dollar terms rose nearly 50 per cent. Volumes fell the most in Europe (109 tonnes) and East Asia (57 tonnes).

The outlook for 2004 was seen to be positive because markets were adjusting to the $400 plus gold price. Jewellery was expected to revive as a result.

Italian jewellery fabrication demand fell the most, to 85 tonnes. Intense competition from countries like Turkey and weaker demand in important end-markets like United States were blamed for the Italian problem.

North American fabrication fell 7 per cent, primarily as a result of weak domestic retail sales. It could have fallen further were it not for higher than expected sales in the last quarter of 2003.

In contrast, Turkish demand rose 46 per cent year-on-year in 2003. Offtake rose by 67 tonnes to 213 tonnes. Turkey became the third largest jewellery fabricator in the world, behind India and Italy.

The report said the secular decline in jewellery consumption caused by changing fashions and consumer spending habits contributed, at the margin, to the overall fall in fabrication. Gold's prospects in 2004 largely depended upon further growth in investment demand.

GFMS' proprietary data showed the combined demand from implied net investment (at 600t), bar hoarding (at 183t) and coin sales (at 105t) amounted to 888 tonnes in 2003. This was 420 tonnes more than World Investment demand in 2002.

World Investment's share of total gold demand in 2003 also rose to 21 per cent, compared to 12 per cent in 2002. Contribution to demand from de-hedging fell from 11 per cent in 2002 to just over 7 per cent in 2003.

The nominal dollar value of World Investment was about $10.4 billion in 2003 against approximately $4.7 billion in 2002.