On May 20, 2008 the World Gold Council released its quarterly demand trends report for gold. The report indicated that total identifiable demand declined by 16% from a year earlier to 701.3 tonnes (the lowest for five years). However, declining demand was accompanied by a 20% rise in dollar value terms to $20.9bn, more than double the level of four years earlier. This increase in value can be attributed to the meteoric rise in the price of gold in the first quarter to levels above $1000/oz. Jewellery demand fell by 21% on a year over year basis to 445.4 tonnes, the lowest quarterly level on record since 1993. While the report indicated declines in jewellery and investment demand for consumers in most countries, most adversely affected were consumers in India, where demand declined by 50% to 102.1 tonnes while China and Russia were the only countries where demand rose by 15% and 9% respectively. The World Gold Council cited the high and volatile prices of gold as a deterrent for purchases while indicating that the economic strength of China and Russia were the drivers for their demand. I would argue that economic growth in India and countries in the Middle East (particularly countries such as Saudi Arabia and the Gulf countries as a result of high oil prices) should have spurred similar increases in jewellery and investment demand such as in China and Russia, so why did it not?
In their outlook for 2008, the council reported that “jewellery demand is likely to remain muted during the second quarter, especially in the USA and Western Europe, although the correction in the gold price from the record highs reached towards the end of the quarter, coupled with the Indian Akshaya Thritiya festival (which appears to have largely arrested the Q1 decline) and the Indian and Middle East wedding seasons, is expected to generate some additional purchasing.”
On a technical basis, the price of gold should find support at $900/oz and lower at $894-895/oz. However, a decided break above its 100 day moving average should probably propel its price to $925/oz.
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