www.gold.

org

Gold Demand Trends

FEBRUARY 2007

Full year and Q4 2006 Table of

Key points: contents
• Identifiable demand for gold fell by 10% in tonnage terms in 2006, broadly in line with
the reduction in total supply. In dollar terms demand rose by 22% to reach a third Overall trends
successive annual record of $65.3bn. in demand 2
• Demand for jewellery also established a new record in dollar terms at $44bn, 14% up Trends in 2006 2
on 2005. In tonnage terms it fell by 16% with price volatility deterring purchases in the
Long term trends
first half year.
in demand 3
• Identifiable investment rose 7% in tonnage terms in 2006 and 45% in dollar terms.
Jewellery 5
Inflows into gold Exchange Traded Funds and similar products amounted to 265
tonnes, 27% up on 2005. New records for net retail investment were set in Turkey (for Industrial
the fifth successive year) and Vietnam. & dental 6

• In 2006 demand from the electronics industry rose 11% in tonnage terms to a new
Investment 8
annual record of 312 tonnes; as a result the industrial and dental demand category Supply 10
rose 7% in tonnage terms (and 45% in dollar terms), also making a new annual record.
Consumer demand
• The 533 tonne (13%) reduction in total supply was primarily due to a sharp increase in individual
in de-hedging (reducing net mine supply) and a 52% fall in net central bank selling. countries 12
These were only partly offset by a 20% increase in scrap supply.
India 13
• In Q4, total identifiable demand was 6% higher than a year earlier in tonnage terms. In Greater China 14
dollar terms it rose by 34% over the same period to reach a new quarterly record of
$19.5bn. The reduction in price volatility encouraged jewellery demand which was 2% Other East Asia 15
higher than a year earlier in tonnage terms (up 29% in dollar terms). Middle East
• Demand in India in Q4 was more than double that of one year earlier in tonnage terms.
& Turkey 16
Imports into the country in October were the highest ever recorded for an individual Europe 17
month.
USA 17
Outlook Historical data 19
• Reports suggest brisk demand in most jewellery markets in January while investor Focus on:
interest also remained positive. Market research findings show that sentiment towards
Middle East 20
gold jewellery in key markets is strong. Prospects for both jewellery and investment
demand in the first half of the year are good although any return of excessive price Notes and
volatility could hinder jewellery purchases. definitions 23

Embargo: Not for release before February 15, 07.00 hours New York Time. © 2007 World Gold Council and GFMS Ltd

FEBRUARY 2007 1
 Gold Demand Trends
OVERALL TRENDS IN DEMAND
Table 1: Identifiable gold demand (tonnes)1

% ch
% ch Q4'06
2006 vs vs
2004 2005 2006 2005 Q4'05 Q1'06 Q2'06 Q3'06 Q4'062 Q4'05

Jewellery consumption 2,610.9 2,704.1 2,266.8 -16 672.4 494.3 526.8 559.4 686.3 2

Industrial & dental 411.0 429.4 458.1 7 105.8 111.8 115.0 116.2 115.1 9
Electronics 260.4 281.4 312.2 11 70.7 75.9 78.9 79.6 77.9 10
Other Industrial 83.1 85.6 86.2 1 19.5 20.7 21.1 22.0 22.4 15
Dentistry 67.6 62.4 59.8 -4 15.7 15.1 15.1 14.7 14.9 -5

Identifiable Investment 473.2 595.9 636.7 7 155.4 194.0 139.8 117.8 185.1 19
Net retail investment 340.5 387.8 371.7 -4 71.8 81.1 90.9 98.5 101.1 41
Bar Hoarding 256.6 262.7 214.5 -18 39.9 38.3 47.2 63.0 66.1 65
Official Coin 114.5 112.0 129.0 15 20.0 33.3 43.0 29.7 23.1 15
Medals/Imitation Coin 26.3 37.0 56.4 53 8.8 11.7 11.0 15.5 18.3 108
Other identified retail invest.3 -56.8 -23.9 -28.3 … 3.0 -2.2 -10.2 -9.7 -6.3 …
ETFs & similar products 4 132.6 208.1 265.0 27 83.6 112.9 48.9 19.2 84.0 1

Total identifiable demand 3,495.1 3,729.3 3,361.6 -10 933.6 800.0 781.6 793.4 986.6 6
London pm fix, $/oz 409.17 444.45 603.77 36 484.20 554.07 627.71 621.67 613.21 27

Source: GFMS Ltd. 1. Identifiable end-use consumption excluding central banks. (Note that in earlier editions of Gold Demand Trends this
table was called “End-use gold demand”). 2. Provisional . 3. “Other retail” excludes bar and primary coin offtake; it represents mainly activi-
ty in North America and Western Europe. 4. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold
Bullion Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, Zürcher Kantonalbank Gold
ETF, Istanbul Gold ETF, Central Fund of Canada and Central Gold Trust.

Trends in 2006
In 2006 total identifiable demand for gold fell 10% in tonnage terms
compared to 2005. Between the same two years it rose 22% in US
dollar terms to a third successive annual record of $65.3bn. The rea-
son for this apparent paradox is, of course, the 36% increase in the
average gold price that occurred during the year coupled with a 13%
reduction (over 500 tonnes) in the volume of supply.

With the volume of supply falling, total demand had to fall by an iden-
tical amount – and the statistically measurable demand shown in
Tables 1 and 2 could not vary greatly from that figure. But the
strength in demand was such that balance between supply and
demand was only achieved by the gold price rising at the fastest
annual pace since 1980 serving to discourage buyers. This differs
from the experience in 2005 when supply increased by 19% and the
rise in the price was “only” 9%. The rise in the dollar value of demand
that year was 16%.

Looking at the three main categories: jewellery demand fell by 16%

in tonnage terms and rose by 14% in dollar terms; industrial and Source: GFMS Ltd; WGC calculations based on GFMS data.

dental demand rose 7% in tonnage terms to set a new annual record

(up 45% in dollar terms); and identifiable investment also rose by 7% sensitive to this factor. In contrast industrial demand is not price sen-
in tonnage terms and 45% in value terms. The pattern of price move- sitive in the short term while investors focus on future price trends.
ments largely explains the difference in the performance of the cate-
gories. The first part of the year was marked by a very volatile gold As price volatility subsided in the second half of the year,
price and this hit jewellery consumption, a large part of which is very demand recovered in those markets that had been particularly

FEBRUARY 2007 2
 Gold Demand Trends

Table 2: Identifiable gold demand ($m)

% ch
% ch Q4'06
2006 vs vs
2004 2005 2006 2005 Q4'05 Q1'06 Q2'06 Q3'06 Q4'062 Q4'05

Jewellery consumption 34,346 38,640 44,002 14 10,468 8,805 10,632 11,180 13,531 29

Industrial & dental 5,407 6,135 8,893 45 1,647 1,991 2,321 2,323 2,270 38
Electronics 3,425 4,021 6,060 51 1,100 1,352 1,592 1,590 1,535 40
Other Industrial 1,093 1,223 1,673 37 303 370 425 440 441 46
Dentistry 889 892 1,160 30 244 270 304 293 294 20

Identifiable Investment 6,225 8,515 12,360 45 2,419 3,456 2,821 2,354 3,650 51
Net retail investment 4,480 5,542 7,215 30 1,117 1,444 1,835 1,970 1,994 78
Bar Hoarding 3,375 3,754 4,164 11 622 682 952 1,260 1,302 109
Official Coin 1,507 1,600 2,505 57 312 593 867 594 455 46
Medals/Imitation Coin 345 528 1,095 107 137 209 221 309 360 164
Other identified retail invest. -748 -341 -550 … 47 -39 -205 -193 -124 …
ETFs & similar products 1,745 2,973 5,145 73 1,301 2,011 986 384 1,656 27

Total identifiable demand 45,979 53,290 65,255 22 14,534 14,251 15,774 15,858 19,451 34

Source: WGC calculations based on GFMS data. 1 See notes to table 1. 2 Provisional

badly affected by it. In both Q1 and Q2 total identifiable demand Jewellery demand was 2% higher (29% higher in dollar terms to a
was 19% lower, in tonnage terms, than a year earlier. By Q3 the quarterly record of $13.5bn); industrial and dental demand was up
reduction in volume was just 6%, while in Q4 the pattern had 9% (38%) and identifiable investment was up 19% (51%).
changed completely with total identifiable demand rising by 6%
compared to Q4 2005. In value terms this was equivalent to a Long-term trends in demand
34% increase in Q4, bringing the value of total demand to Chart 2 illustrates the interplay between identifiable demand in ton-
$19.5bn – a quarterly record. nage terms (columns, subdivided by category) and dollar terms (red

Source: GFMS, WGC calculations based on GFMS data. 1. Supply is the sum of mine output, (de)hedging, net official sales and scrap.

FEBRUARY 2007 3
 Gold Demand Trends
line) over the longer-term. Most of gold’s major markets are in Meanwhile the expansion in jewellery demand seen through much
countries whose currencies are linked either tightly or loosely to of the 1990s appeared to have halted despite the increase in
the dollar, so this makes the US currency a good proxy for the consumers’ purchasing power arising from the rapidly growing
value of overall spending. The chart also shows supply in tonnes world economy. With the benefit of hindsight, it seems that this was
(brown line with markers) since the amount that is supplied to the primarily due to a lack of adequate promotion, compared to
market inevitably constrains demand. (The difference between competitors, combined with a less than optimal product offering.
supply and demand in the chart is made up of the inferred invest-
ment balancing item.) The result was the falling price of the late 1990s and quite a sharp
dip in the dollar value of demand during this period. Even when sup-
The chart shows how industrial and dental demand has been on a ply fell from 2000 onward, primarily as a result of mining companies
very slow-growing upward trend while jewellery and investment switching from net hedging to net de-hedging, demand in tonnage
demand have fluctuated. remained initially lacklustre and the dollar value remained stagnant.

From 1992 to 1996 inclusive, supply remained close to 3,500 The picture changed after 2002. Investors started to come back to
tonnes, with the single exception of 1994. During this time there was the market as the political/economic scene changed in gold’s favour
a mild upward trend in the value of demand which reached a small (falling dollar, growing political worries, economic concerns). In
plateau between 1995 and 1997. From 1997 to 1999, supply 2003 this interest was apparent mainly in the “inferred investment”
increased as a combined result of moderately higher mine output, item but thereafter the advent of Exchange Traded Funds provided
the growth in mine company hedging (forward sales and associat- a new investment avenue. By making gold investment easier for
ed transactions) and increased net official selling; scrap remained many investors, these became a further means of encouraging
stable with the exception of 1998 when it increased sharply in a investment. Given the constraints on overall supply, which fluctuat-
temporary response to the Asian crisis. ed around a horizontal trend during this period, jewellery demand
found itself squeezed between increased investor interest and solid
During this period demand was not sufficiently vibrant to cope ade- industrial demand.
quately with the increased supply. Gold was out of favour with
investors for a number of reasons, including the strong dollar, a The squeeze was only apparent in tonnage terms, however.
general economic boom and rapidly rising stock markets together Jewellery demand gained new vibrancy with the combination of
with increasing fears over the extent of official sector selling. increased and better focused promotion, improvements in the prod-

Source: Global Insight, WGC

FEBRUARY 2007 4
 Gold Demand Trends
uct offering and renewed global economic strength. Consequently This period of volatility in the first eight months of 2006 was excep-
when the gold price started to rise, the dollar value of jewellery tional for the gold price, as chart 4 shows. Volatility then subsided
spending rose with it. and was back to more normal levels by the end of the year.

The overall result of new and growing interest from investors, Around two thirds of jewellery demand comes from Asia (excluding
renewed appetite from jewellery buyers and solid industrial demand Japan) and the Middle East. Much gold jewellery in these regions is
was not just a rise in the gold price but also rapidly growing spend- sold by weight at a price which varies from day to day according to
ing on gold in value terms. As the graph shows this was a sharp movements in the gold price, and with only a small mark-up over that
change from the experience of the 1990s. By 2004 demand had price. Consumers in these countries are very conscious of the gold
reached a new dollar record. In 2005 the strength of demand was price and hesitate to buy at times of price volatility lest they find that
sufficient to cope with a 19% rise in the volume of supply and enable they could have bought at a more advantageous price later. Prices
the price to rise by 9%. In 2006, when supply fell by 13% from 2005 that are perceived to be high also attract more selling back of jew-
levels, the strength of demand resulted in a massive 36% price rise ellery. Thus when the price is volatile jewellery demand typically falls.
and a third annual successive record, at $65.3bn, in the value of It recovers when prices are perceived to be stable. In addition, when
identifiable demand. there is a general feeling that the price is more likely to rise than to
fall, there is an obvious incentive to buy on any dips.
Jewellery
In 2006 price movements (chart 3) were the main direct determinant Price volatility has some impact on jewellery demand in USA and
of the pattern of jewellery demand throughout the year. 2005 had Western Europe at the trade level where it is also sold by weight plus
already seen the price move up sharply through the year. This con- a manufacturing margin. The effect of price changes on final demand
tinued, apart from a brief pause from mid-January to mid-March, in is less evident as the impact on retail prices is often delayed and
the first part of 2006. From late March the price rise resumed and trade margins are generally higher, but excessive volatility can dis-
accelerated, gaining over $170 in under eight weeks to reach a peak rupt the supply chain since it affects company credit limits and “open
of $725/oz on May 12. It then fell sharply (along with the price of to buy” limits for buyers in retail stores.
many other financial assets) to a trough of $567/oz on June 20
before bouncing back to a secondary peak of $663/oz on July 14. It Thus it is not surprising that price movements in the first eight
was not until mid-August that price movements stabilised. months of the year provided a severe deterrent to jewellery purchase
and that this was evident primarily in Asia (excluding Japan) and the
Middle East (although the effect in China was muted – see section on
individual countries).

As the price volatility subsided from late August, conditions became

more propitious for jewellery buying. Jewellery demand then surged
from mid-September to late-October when the price fell below $600
and remained in a $570-$600 range until the very end of October.
Given the experience of the earlier part of the year, this provided not
only sufficient stability but also what seemed like a good buying
opportunity. This period also saw the run-up to both Diwali in India
and the Eid al Fitr at the end of Ramadan, both of which occurred
almost simultaneously in late-October and which are both heavy
gold buying occasions.

Demand appears to have been somewhat more muted in November

when the price rose again above $600 and started to move towards
$650; in addition the month lacked major gold-buying occasions. A
partial retreat in the price during much of December, coupled with
Christmas and the Eid al Adha at the end of the year, helped demand
Source: Global Insight, WGC calculations.
to recover in that month although globally, the pace was probably
This chart makes it possible to compare the historical volatility of less brisk than in October.
gold over time. For detailed notes on methodology, please see
http://www.gold.org/value/stats/statistics/methodology/index.html
or email research@gold.org.

FEBRUARY 2007 5
 Gold Demand Trends
In summary, jewellery demand in Q4 was stronger than in the earlier Chart 5 shows the long-term trend: the growth in the first part of the
part of the year. In the first half year it was 28% lower than a year ear- 1990s, the weakness around the turn of the century and the recov-
lier in tonnage terms and effectively unchanged in dollar terms. In Q3 ery of the last three years.
it was 9% lower than a year earlier in tonnage terms but 29% higher
in dollar terms. In Q4 it was 2% higher in tonnage terms than in Q4 Industry
2005 and also 29% higher in dollar terms. Industrial and dental demand reached a new record in both tonnage
and dollar terms in 2006. Tonnage figures, up 7% on 2005 at 458
For the year as a whole demand was 2,267 tonnes, 16% lower than tonnes, just outstripped the previous record in 2000. This was due to
a year earlier (and in fact the lowest tonnage figure since 1990). In vibrant demand from the electronics sector, which also established
dollar terms it rose 14% to a new annual record of $44bn. As dis- new annual records, rising 11% in tonnage terms to 312 tonnes. In
cussed earlier this is a good measure of consumer buying since dollar terms the year on year increases were 45% for the category as
most major jewellery markets have currencies linked tightly or loose- a whole and 51% for electronics.
ly to the dollar. Q4 was also a record in dollar terms at $13.5bn.
The growth in electronics was primarily due to heavy demand from a
Jewellery demand, as statistically measured, in 2006 was also range of consumer goods containing electronic circuitry, supported
unusually constrained due to an element of inventory reduction. by strong global GDP growth. This was a result both of newer goods,
Normally distributors build up stocks in the first nine months of the such as MP3 players or flat screen televisions, establishing them-
year and then reduce them in the fourth quarter. (This seasonal pat- selves in the market place, and of greater use for gold in traditional
tern is primarily a feature of North American and European countries; goods such as automobiles as a result of improved quality and effi-
turnover is much more rapid in Asia and the Middle East so that ciency of components using gold. Together these factors lifted
inventory changes are less important.) However the sharp rise in the demand for gold bonding wire, sputtering targets and plating solu-
gold price in the first half of the year led to an unusual reduction in tions (primarily gold potassium cyanide). The gains primarily took
inventories at that time and, as a result, to a reduction of around 100 place in East Asia, including Japan, and, to a lesser extent, the
tonnes in the year as a whole. Many retailers also used the higher United States.
gold price to recycle old inventory into more saleable styles.

Source: GFMS, WGC calculations based on GFMS data

FEBRUARY 2007 6
 Gold Demand Trends
Electronics demand was robust throughout the year although the for this use of gold, while competing materials such as ceramics are
year on year increase in Q4 was slightly lower than in the first three increasingly popular.
quarters and the recorded tonnage was slightly lower than in Q3
(thought to have been due to inventory adjustments). Although thrift- Not surprisingly, electronics has over the long term been the most
ing is always a factor in industrial use, the higher price of gold does buoyant industrial use of gold (chart 6). Demand from this sector has
not appear so far to have been a significant deterrent to electronics generally been on an upward trend although it has also been affect-
use. Apart from the time needed to change materials in industrial ed by the economic cycle (hence the peak in 2000 and the reduction
applications, gold is usually a small part of overall costs while quali- in 2001 following the global economic slowdown). Other industrial
ty and reliability are becoming increasingly important in many appli- uses can be subdivided into that from India, demand for which is
cations (gold’s resistance to corrosion gives it high performance growing but fluctuates in a way which is broadly similar to that for
standards). jewellery demand in the country, and that from other countries where
demand has been falling in recent years as taste has moved away
Other industrial and decorative gold demand rose by just 1% in the from gold decoration.
year as a whole in tonnage terms (up 37% in value terms). Demand
in Q4 was considerably stronger than in the earlier part of the year A wide range of new industrial and medical uses for gold, many
due to a rebound in India, which accounts for around 30% of the total using nanotechnology, are being developed, ranging from gold-
of this sector. Demand for jari (gold thread used particularly in wed- based mercury traps to remove mercury from coal-fired power sta-
ding saris) was strong. Elsewhere there was an increase in demand tion emissions, through chemical catalysts, to medical diagnostic
for gold plating at the expense of solid gold items, largely due to the and cancer treatments. Most of these are still in the research or pre-
high price. commercial phases and the contribution they will make to demand
will not become evident for a few more years.
Dental demand fell by 4% in 2006 in tonnage terms (up 30% in dol-
lar terms). The high price and restrictions on treatments reimbursed
by national health budgets (notably in Germany) are limiting demand

Source: GFMS, WGC calculations based on GFMS data

FEBRUARY 2007 7
 Gold Demand Trends
Table 3: Investment demand (tonnes)
% ch % ch
2006 Q4'06
vs vs
2004 2005 2006 2005 Q4'05 Q1'06 Q2'06 Q3'06 Q4'062 Q4'05

Identifiable Investment 473.2 595.9 636.7 7 155.4 194.0 139.8 117.8 185.1 19
Net retail investment 340.5 387.8 371.7 -4 71.8 81.1 90.9 98.5 101.1 41
Bar Hoarding 256.6 262.7 214.5 -18 39.9 38.3 47.2 63.0 66.1 65
Official Coin 114.5 112.0 129.0 15 20.0 33.3 43.0 29.7 23.1 15
Medals/Imitation Coin 26.3 37.0 56.4 53 8.8 11.7 11.0 15.5 18.3 108
Other identified retail invest.2 -56.8 -23.9 -28.3 … 3.0 -2.2 -10.2 -9.7 -6.3 …
3
ETFs & similar products 132.6 208.1 265.0 27 83.6 112.9 48.9 19.2 84.0 1

"Inferred investment"4 -134.1 255.0 89.8 -65 316.0 -11.7 107.1 10.3 -15.8 …

"Total" investment 339.1 850.9 726.5 -15 471.4 182.2 246.9 128.0 169.3 -64
"Total" investment, $m 4,461 12,159 14,103 16 7,338 3,247 4,982 2,559 3,339 -54

Source: GFMS Ltd. 1. Provisional . 2. “Other retail” excludes bar and primary coin offtake; it represents mainly activity in North America and
Western Europe. 3. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold Bullion Securities (Australia),
streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, Zürcher Kantonalbank Gold ETF, Istanbul Gold ETF, Central
Fund of Canada and Central Gold Trust. 4. See notes to table 4.

Investment
Identifiable investment in 2006 was 7% higher than 2005 in tonnage primarily to other forms of retail investment in Western Europe.
terms and 45% higher in dollar terms. The fourth quarter was partic- It continued to be dominated by dishoarding from France.
ularly strong with a 19% rise in tonnage terms and a 51% increase in
dollar terms. Inflows into Exchange Traded Funds and similar products (ETFs), at
265 tonnes, were 27% higher than in 2005 (up 73% in dollar terms).
Trends in retail investment were mixed both as regards categories The increase is particularly significant since 2005 had benefited from
and between the different quarters. Most bar hoarding and “medals the latter stages of the initial surge of investment into the largest fund,
and imitation coins” investment occurs in the Middle East and Asia. streetTRACKS Gold Shares, following its launch in November 2004,
It can at times react to price movements in a not dissimilar way to and from the initial investment surge into the third largest fund, the
jewellery purchases and rising prices can spur profit taking. The iShares Comex Gold Trust. By way of comparison, 2006 saw the
same is true for part of the official coins category. It is therefore not launch of Zürcher Kantonal Gold ETF and GOLDIST issued by
surprising that net retail investment, like jewellery, displayed a Finans Portfoy; in addition streetTRACKS Gold Shares was cross-
steadily improving trend throughout the year. In Q1 and Q2 listed on the Mexican and Singapore exchanges.
tonnage was 33% and 18% respectively below year-earlier levels;
in Q3 and Q4 tonnage was 16% and 41% higher. Investment into the ETFs varied throughout the year but they
continued to attract “buy and hold” investors, thus suffering only very
The geographical pattern of demand is also important in determining limited attrition through redemptions at times when other gold
trends. Bar hoarding is concentrated in India, Japan, Vietnam, instruments were seeing substantial disinvestment. Investment in the
Thailand and the Middle East. Demand was strong in India and in market leader, streetTRACKS Gold Shares, has switched from
Vietnam but net dishoarding, due to profit taking, was seen in Japan predominantly institutional in early 2005 (mostly hedge funds), to
and in some other countries. Turkey accounts for nearly half the more than 70% retail at the end of 2006, dominated by the private
demand for official coin; record offtake in that country (for the fifth wealth sector, especially high net worth individuals.
successive year) helped to keep demand in that category above
year-earlier levels throughout the year with the exception of Q1. The By the end of 2006 the gold held by ETFs and similar funds
medals and imitation coins category applies almost entirely to India, amounted to 652.5 tonnes, worth $12.7bn. In Q4 the increase in
and the strong annual rise reflects vibrant demand in that country. It ETFs was 84 tonnes, a similar amount to the net inflows one year
should be noted that in India coins and small bars are sometimes earlier; this was concentrated into November which saw inflows of
bought with the intention of trading them in for jewellery at a later around 60 tonnes.
stage; effectively they are a cost effective way of providing for future
jewellery needs. The “other retail investment” category refers

FEBRUARY 2007 8
 Gold Demand Trends
It is often quite an erratic item since it will include hedge funds and
other speculative investors with a short-term trading horizon. In much
of 2006 this category of investor tended to move in and out of the
market within fairly short time periods. Thus, with the important
exception of Q2 when a substantial net inflow of investors helped to
drive the price up to the $725 peak in May, the net movement in each
quarter was quite small. In Q4 the balance is thought to have been
slightly negative. Investor interest was most apparent from late-
October to early December when investors helped to drive the price
up from under $600 to almost $650; after this, profit taking predomi-
nated for most of the rest of the month. Although the notional value
of net long non-commercial positions reported by the Commodity
Futures Trading Commission (CFTC) increased by 18% from the end
of Q3 to the end of Q4 – corresponding to an increase of 13% in the
number of contracts – net longs were lower on average during Q4
than they had been in Q3.

For the year as a whole, inferred investment amounted to 89.8

tonnes, substantially less than the 255 tonnes seen in 2005 but still
Source: GFMS based on company websites clearly positive. Substantial net inflows were confined to Q2. If the
inferred figure is added to identifiable investment, the total amounts
to 726.5 tonnes or $14.1bn, 15% lower than the 2005 figures in
The final category of investment is the “inferred investment” tonnage terms but 16% higher in dollar terms.
category (previously called the balance item in the supply and
demand table). This is made up of all those items that cannot be An increasing number of long-term institutional investors are taking
directly statistically measured. In addition to institutional investment positions in commodities, including gold. By the end of 2006, no
outside ETFs it also includes stockbuilding and other elements as fewer than 35 pension funds, endowments and foundations were
well as any statistical error. Nevertheless non-ETF institutional investing in commodities, based on information in the public domain.
investment flows are normally the main component and this item is Some of these investors had entered the market in previous years,
therefore a reasonable guide to them. It includes gold held in but a significant number are new to the commodity market.
allocated and unallocated metal accounts, therefore also all gold
held to back derivative positions whether on the OTC market or
exchange-based products.

FEBRUARY 2007 9
 Gold Demand Trends
SUPPLY
Table 4: Gold supply and demand (WGC presentation)

% ch
% ch Q4'06
2006 vs vs
2004 2005 2006 2005 Q4'05 Q1'06 Q2'06 Q3'06 Q4'062 Q4'05

Supply
Mine production 2,469 2,522 2,467 -2 678 576 599 644 647 -5
Net producer hedging -427 -86 -403 … 29 -156 -139 -65 -43 …
Total mine supply 2,042 2,436 2,063 -15 707 420 460 579 604 -15
Official sector sales2 470 659 319 -52 162 99 116 63 41 -74
Old gold scrap 849 889 1,069 20 276 297 319 216 238 -14
Total Supply 3,361 3,984 3,451 -13 1,145 815 895 858 883 -23

Demand
Fabrication
Jewellery 2,611 2,704 2,267 -16 568 521 533 614 599 5
Industrial & dental 411 429 458 7 106 112 115 116 115 9
Sub-total above fabrication 3,022 3,133 2,725 -13 674 633 648 730 714 6
Bar & coin retail investment 3
397 412 400 -3 69 83 101 108 107 56
Other retail investment -57 -24 -28 … 3 -2 -10 -10 -6 …
ETFs & similar 133 208 265 27 84 113 49 19 84 1
Total Demand 3,495 3,729 3,362 -10 829 827 788 848 899 8

"Inferred investment"4 -134 255 90 -65 316 -12 107 10 -16 …

London PM fix (US$/oz) 409.17 444.45 603.77 36 484.20 554.07 627.71 621.67 613.21 27

Source: GFMS Ltd. Data in this table are consistent with those published by GFMS but adapted to the WGC’s presentation and take account
of the additional demand data now available. The “inferred investment” figure differs from the “implied net (dis)investment” figure in GFMS’
supply and demand table as it excludes “ETFs and similar” and “other retail investment”. Note that jewellery data refer to fabrication and
quarterly data differ from those for consumption in tables 1 and 2. 1. Provisional. 2. Excluding any delta hedging of central bank options. 3.
Equal to the sum of the first three rows in Table 1. 4. This is the residual from combining all the other data in the table. It includes institu-
tional investment other than ETFs & similar, stock movements and other elements as well as any residual error. In previous editions of GDT it
was referred to as the “balance”.

Gold supply was tight in 2006, falling 13% from 2005 levels to 3,451 The impact of these reductions in output was offset to a small extent
tonnes. This was due primarily to a substantial reduction in net cen- by new mines coming on stream, or ramping up, in Brazil, Ghana
tral bank selling and a sharp temporary increase in producer de- and Kazakhstan.
hedging. Together these reduced overall supply by 657 tonnes with
mine output contributing a further 56 tonne reduction. Scrap supply, Net de-hedging by mining companies is provisionally estimated at
the only element of supply (other than disinvestment) which is just 43 tonnes in Q4. This compares with Q4 2005 when there was
responsive to price movements in the short-term, rose by 180 net hedging making a turnaround of 72 tonnes on a year to year
tonnes, or 20%, but this was not sufficient to counter the 23% fall in comparison. However, the reduction in the hedgebook in Q4 was
the other three elements combined. small compared to that in the first half of the year which was influ-
enced by the sharp reduction in Placer Dome’s hedgebook following
Mine production in Q4 was 5% lower than in Q4 2005 with particu- the company’s acquisition by Barrick. In 2006 as a whole de-hedg-
larly abrupt falls in Indonesia and Peru. Factors contributing to this ing amounted to 403 tonnes compared to just 86 tonnes in 2005.
include the comparison being with a strong Q4 2005 for the Total mine supply (mine output less net de-hedging) was therefore
Grasberg mine in Indonesia and Yanacocha in Peru and the ongoing 15% lower in 2006 than in 2005.
consequences of an earlier pitwall failure at Batu Hijau in Indonesia.

FEBRUARY 2007 10
 Gold Demand Trends

Official sector sales were also sharply lower in Q4 compared to a September 26, 2006) amounted to 395.75 tonnes (within a tonne of
year earlier, continuing the trend in the earlier part of the year and WGC estimates) thus ending the speculation about the extent of
bringing net sales for the year as a whole to just 319 tonnes, less selling. In December Slovenia joined the Agreement in preparation
than half that recorded for 2005. This was the result of both lower for its entry into the Eurozone in January 2007. With gold reserves
selling from signatories to the Central Bank Gold Agreement at just over 5 tonnes, this will not make any practical change to the
(CBGA), which sold a net 341.1 tonnes in the calendar year, and a Agreement but it is interesting to note the principle that new
small amount of net buying from central banks outside the adherents to the Eurozone can join the Agreement.
Agreement.
Scrap supply in Q4 at 238 tonnes was 14% lower than in Q4 2005
Shortly after the last edition of Gold Demand Trends was published, as a result of the reduced price volatility. In 2006 scrap supply was
the President of the European Central Bank, Jean-Claude Trichet, concentrated into the first part of the year when the price was
confirmed that net selling from CBGA signatories during the unusually volatile.
second year of the current agreement (September 27, 2005 to

FEBRUARY 2007 11
 Gold Demand Trends
CONSUMER DEMAND1 TRENDS IN INDIVIDUAL COUNTRIES
Table 5: Consumer demand trends in individual countries, 2005 and 2006
2005 20061 % change 2006 vs 2005
Net retail Net retail Net retail
Jewellery invest. Total Jewellery invest. Total Jewellery invest. Total
India 587.1 134.5 721.6 505.5 185.6 691.1 -14 38 -4
Greater China 277.7 14.8 292.5 275.4 19.1 294.5 -1 29 1
China 241.4 11.7 253.1 244.7 14.9 259.6 1 27 3
Hong Kong 14.0 0.6 14.6 13.1 0.4 13.5 -6 -41 -8
Taiwan 22.4 2.5 24.9 17.6 3.9 21.5 -21 54 -14
Japan 34.0 40.0 74.0 33.4 -42.7 -9.4 -2 … …
Indonesia 78.0 3.0 81.0 58.0 -1.0 56.9 -26 … -30
Vietnam 26.9 34.0 60.9 22.1 64.0 86.1 -18 88 41
Middle East 365.2 22.6 387.7 304.2 19.9 324.1 -17 -12 -16
Saudi Arabia 146.2 7.3 153.5 113.3 9.0 122.3 -23 23 -20
Egypt 75.3 0.9 76.2 60.2 0.4 60.5 -20 -61 -21
UAE 96.4 10.0 106.4 88.2 7.9 96.0 -9 -22 -10
Other Gulf 47.3 4.4 51.6 42.6 2.7 45.3 -10 -38 -12
Turkey 194.9 53.5 248.4 165.3 59.9 225.2 -15 12 -9
USA 349.0 28.3 377.3 308.7 27.4 336.1 -12 -3 -11
Italy2 71.0 … 71.0 64.0 … 64.0 -10 … -10
UK2 59.4 … 59.4 49.9 … 49.9 -16 … -16
Europe3 … -13.9 -13.9 … -11.5 -11.5 … … …
Total above 2,043.1 316.8 2,359.9 1,786.4 320.7 2,107.1 -13 1 -11
Other & stk ch 661.0 71.0 732.0 480.3 51.0 531.3 -27 -28 -27
World Total 2,704.1 387.8 3,091.9 2,266.8 371.7 2,638.4 -16 -4 -15

Source: GFMS Ltd 1. Provisional. 2. Jewellery only. 3. Net retail investment only.

Table 6: Consumer demand trends in individual countries, Q4 2005 and Q4 2006

Q4 2005 Q4 20061 % change Q4 2006 vs Q4 2005
Net retail Net retail Net retail
Jewellery invest. Total Jewellery invest. Total Jewellery invest. Total
India 68.8 30.1 98.9 151.0 56.7 207.7 120 88 110
Greater China 72.1 5.0 77.1 73.9 6.2 80.1 2 25 4
China 63.4 4.8 68.2 65.5 5.0 70.5 3 5 3
Hong Kong 2.8 -0.2 2.6 3.7 0.2 3.9 30 … 48
Taiwan 5.9 0.4 6.3 4.7 1.0 5.7 -20 150 -10
Japan 8.7 6.0 14.7 8.7 -8.8 -0.1 0 … …
Indonesia 15.4 0.2 15.6 13.7 0.2 13.9 -11 20 -11
Vietnam 7.0 1.0 8.0 6.4 21.0 27.4 -9 2000 242
Middle East 69.5 3.5 73.0 73.3 4.0 77.3 5 14 6
Saudi Arabia 25.2 1.4 26.6 28.6 1.9 30.5 13 35 15
Egypt 16.3 0.3 16.6 16.0 0.0 16.0 -2 -100 -3
UAE 16.6 1.0 17.6 17.8 1.3 19.1 7 25 8
Other Gulf 11.4 0.9 12.3 10.9 0.8 11.8 -5 -1 -4
Turkey 30.6 5.5 36.1 32.0 8.3 40.3 4 52 12
USA 148.4 9.3 157.7 126.4 3.7 130.1 -15 -60 -18
Italy2 34.1 … 34.1 31.1 … 31.1 -9 … -9
UK2 32.5 … 32.5 26.7 … 26.7 -18 … -18
Europe3 … -0.7 -0.7 … -2.9 -2.9 … … …
Total above 487.1 59.9 547.1 543.1 88.5 631.7 11 48 15
Other & stk ch 185.3 11.9 197.1 143.2 12.6 155.8 -23 6 -21
World Total 672.4 71.8 744.2 686.3 101.1 787.4 2 41 6
Source: GFMS Ltd 1. Provisional. 2. Jewellery only. 3. Net retail investment only.

1
Consumer demand is gold bought by individuals – i.e. jewellery and net retail investment. Unless otherwise specified all data in this section
refer to tonnage figures and growth rates are comparisons with the same period of the previous year.

FEBRUARY 2007 12
 Gold Demand Trends
India
The sub-$600 prices of mid-September to end-October, coupled with For the year as a whole, Indian demand was 691.1 tonnes, 4%
the festival of Diwali towards the end of October and a national jew- lower than in 2005; this equated to a 34% rise in rupee terms.
ellery promotion with retailers, provoked an almost unprecedented Jewellery demand was 505.5 tonnes, down 14% on the strong year
surge in demand for gold in India. October saw the highest ever level of 2005 while net retail investment, at 185.6 tonnes, was 38% high-
of gold imports into the country for a single month (September hav- er than 2005. The difference between the two categories was due
ing been the third highest). Demand was exceptional both for jew- partly to the deterrent impact of price volatility on jewellery
ellery and for coins and bars, with acute shortages of 50g and 100g demand, particularly in the first half, and partly to a number of pos-
bars in certain areas. In addition to buying for investment purposes, itive factors encouraging investment. These included increased
part of the demand for bars and coins came from buying in anticipa- investor interest due to the rising gold price, the growth in the num-
tion of the forthcoming wedding season or other anticipated jew- ber of bank outlets offering gold coins and associated promotion,
ellery needs; these bars and coins will either be manufactured into and finally the increased buying of gold coins with a view to using
gold jewellery, or traded in, at the appropriate time. the gold for future jewellery needs.

The price started to rise again in November, averaging $628/oz, or Some parts of the jewellery market performed better than others in
just over Rs 9,000 per 10g, compared to $586/oz, or under Rs 2006. Established brands and key regional trade entities per-
8,600/10g, in October. This, coupled with the absence of festivals or formed well since this segment of the market is less price sensi-
auspicious days for weddings, meant that demand in November was tive. Mid-level players faced a tougher environment in the crucial
considerably lower. December was a mixed month with a limited wedding market; the trend away from extended families living
number of auspicious days for weddings and some recovery in together has meant that newly-weds are increasingly being given
demand compared to November. cash to help fund the purchase of a flat, leaving less money avail-
able for gold buying. In contrast gold remains the major part of
Overall, consumer demand in the fourth quarter was 207.7 tonnes. wedding gifting, and an integral part of savings and investment, in
This was more than double the level of one year earlier; however Q4 rural areas. Thus rural demand remained strong, particularly in
2005 was a depressed quarter and a better comparison is with Q4 areas where rubber and coconut are grown since these products
2004, when demand was 177.8 tonnes. Jewellery demand in Q4 commanded high prices.
2006 was 151.0 tonnes (Q4 2005: 68.8 tonnes, Q4 2004: 149.4
tonnes) while net retail investment amounted to 56.7 tonnes (Q4 Chart 9 shows longer-term trends in Indian gold demand, both in
2005: 30.1 tonnes; Q4 2004: 28.4 tonnes). Imports in October to tonnage terms (columns, subdivided into jewellery and net retail
December were a fourth quarter record and the second highest investment) and in Rupees (line, total consumer). From 1992 to
quarter ever. 1998 both volume and value increased as Indians became wealth-
ier and as the gold market was liberalised. From 1998 to 2003 the
amount of money spent on gold stagnated; the volume bought also
stagnated at first and then, as the gold price started to rise,
tonnes Rs/10g demand volume fell. It was only from 2004 that the value of gold
demand started to rise strongly again; the volume of demand has
recovered so that, despite a rupee price more than double the level
at the end of the 1990s, demand is only slightly below the peak lev-
els achieved in the 1998-2001 period.

Source: WGC

FEBRUARY 2007 13
 Gold Demand Trends
estimated 18% of all jewellery sales in the year, up from 15% in
2005. More retailers were recruited in more cities and promotion
campaigns continue to market the concept to a broadening range
of customers. Since it was introduced in 2003, K-gold has been
largely responsible for growing the jewellery market in China
(see chart 10).

The jewellery industry in China, which was stifled for many years by
heavy regulation, is starting to become more sophisticated and
diversified. More chain stores are offering a better retail
environment, higher-value added products are being offered and
companies are starting to develop their own brand image and
investing more in marketing.

Net retail investment in China continues to grow slowly, reaching 5

tonnes in Q4 and around 15 tonnes for the year as a whole.
Investment bars in four sizes from 50g to 1 kg were launched in
December by a subsidiary of China Gold Group Corp (not a
commercial bank but the retail arm of the refinery), with the
company offering individuals the possibility of two-way trading with
a spot price closely linked to that on the Shanghai exchange for the
Source: GFMS Ltd, WGC calculations based on GFMS data first time in China. However, commercial banks are still unable to
offer sales of gold bars to individuals because of the difficulty in bar
trading, given the tax regimes under which they operate, of
Prospects for the first part of 2007 are good, provided as always that imposing 17% Value Added Tax on the value added portion; this is
the price is not exceptionally volatile; Rs9,000/10g, approximately hampering the development of the market.
equivalent to $628/oz, is a key pricing point. There are a number of
auspicious days for weddings in the mid-January to mid-February
period, while the Indian economy remains extremely buoyant.

Greater China
Overall consumer demand in Greater China was 4% higher than a
year earlier in Q4 in tonnage terms, equivalent to a 32% increase in
dollar terms. Jewellery demand rose by 2% and net retail invest-
ment by 25%. This meant that consumer demand for 2006 as a
whole was 1% higher than in 2005 (up 27% in dollar terms) with
jewellery falling by 1% and net retail investment rising by 29%.

Jewellery demand in mainland China had been less affected by

price volatility throughout the year than other Asian countries, with
consumers more willing to buy into a rising market in anticipation
of continued price increases. Nevertheless volatility did have some
impact, effectively restraining demand to levels close to those in
2005. The greater stability of prices in the last months of the year
encouraged a slightly brisker pace of buying, enabling jewellery
demand in Q4 to rise 3% above year-earlier levels.

In 2006 as a whole, jewellery demand in China was just over 1%

higher than a year earlier. Demand for the traditional chuk kam (24
carat) jewellery showed a small increase, while K-gold (18 carat
jewellery) continued to gain market share, accounting for an Source: GFMS, WGC

FEBRUARY 2007 14
 Gold Demand Trends
Commemorative bars and coins for the forthcoming Year of the Pig
have been selling rapidly since the last weeks of 2006, as the Pig is
the symbol of wealth and prosperity. Demand for both jewellery and
investment products has reportedly been brisk in the first weeks of
2007 in the run-up to Chinese New Year on February 18. Olympic
bars and coins also remain popular. Thus prospects for gold
demand in the first part of 2007 look promising.

After several years of lack-lustre demand the gold jewellery market in

Hong Kong sparkled in Q4 with demand soaring 30% above the level
of one year earlier. Strong economic growth and an auspicious
Autumn wedding season (the Year of the Dog being propitious for
weddings), coupled with the more stable gold price, all boosted
demand. A strong stock market contributed to a general feeling of
prosperity, while falling unemployment and tourist buying also
helped.

The strong result in Q4 limited the fall in jewellery demand for the
year as a whole to 6%. Looking forward, robust economic growth is
expected to support good jewellery demand in 2007. Source: GFMS, WGC

In contrast to Hong Kong, demand in Taiwan remained weak in Q4 Selling back continued to dominate the retail investment scene in the
with jewellery demand 20% below year-earlier levels, a rate of decline first weeks of 2007, particularly when the yen price hit a 21-year high
similar to that recorded in the first three quarters. Political and eco- on February 1. Prospects for retail investment will depend on price
nomic uncertainties continued to weigh on the retail environment, movements, which in turn will depend in part on movements in the
reducing demand for luxury goods. Demand for wedding sets during yen/dollar exchange rate.
the Autumn wedding season was strong but customers tended to
opt for more basic sets, reducing the overall purchase. On a more In Vietnam, high gold prices continued to restrain jewellery demand
positive note, Q4 saw less scrap coming into the market, paving the in Q4, although with a more stable price the year on year rate of
way for a better 2007 when demand should also be helped by the decline at 9% was lower than in earlier quarters. For the year as a
auspicious Year of the Pig. whole, jewellery demand was 22.1 tonnes, 18% lower than in 2005.

Other East Asia In contrast, Q4 saw a continuation of the investment boom that start-
The depreciation of the Yen during Q4 meant that the Yen gold ed in Q3, with net offtake at 21 tonnes just one tonne lower than in
price rose still higher, averaging Y2,322 per gramme for the quarter. Q3. Gold bars have proven to be the best performing investment
Retail investment continued to be dominated by selling back instrument in 2006 available in Vietnam and this prompted increased
promoted by the high price; investors who had bought some years demand. The strong fourth quarter brought offtake for the year as a
previously made an excellent profit (see chart 11). There contin- whole to 64 tonnes – not just a record but 63% higher than the pre-
ued to be a certain amount of new investment with potential vious annual record in 2004. This also pushed total consumer
investors gradually getting accustomed to current gold price lev- demand as a whole to a new record of 86.1 tonnes, despite the fall
els, but new buying was swamped by the heavy selling. New in jewellery demand.
investors are buying cautiously, often through Gold Accumulation
Plans which permit a small amount of regular saving each month. The year 2007 started well in Vietnam, particularly when the gold
price dropped back from $650 in the first days of January. Demand
The continued selling back in the fourth quarter brought net disin- was brisk and nearly 10 tonnes of gold were imported in the first two
vestment for the year to 42.7 tonnes with total consumer offtake for weeks of the year. The higher prices of the last few weeks dampened
the year also in negative territory. Jewellery demand in Q4 totalled demand, but new year festivities and the wedding season should
8.7 tonnes, unchanged from one year earlier. Annual jewellery sustain demand at a good level in Q1 provided the price does not
demand at 33.4 tonnes was 2% lower than in 2005. rise too far.

FEBRUARY 2007 15
 Gold Demand Trends
Jewellery demand in Indonesia in Q4 was 11% below year-earlier Shopping Festival in January 2006, a key buying time for gold.
levels, an improvement on the earlier part of the year. Demand was Despite these factors and the high price volatility, the fall in demand
brisk in October, when the price was below $600/oz, but fell back was less marked than in Saudi Arabia, due largely to the strength
with the higher prices in November. For the year as a whole of tourist demand. 22 carat jewellery, primarily sold to the Indian
demand was 26% below that in 2005. Indonesia is a highly price market (both expatriate residents and visitors), appears to have suf-
sensitive market and 2006 saw a substantial amount of selling fered most from the high prices. Low mark-ups on this form of jew-
back. The high gold price has also seen a drift to low-carat items in ellery make it less attractive to the trade to supply, while consumers
rural areas. Net retail investment remained close to zero through- in the lower-income segment of this market could only afford small-
out the year. er purchases and also found their disposable income squeezed by
higher inflation. In contrast, 18 carat jewellery has higher mark-ups
and is sold to the tourist or higher-income resident sector; it thus
MIDDLE EAST AND TURKEY performed better. Q4 saw the start of the 2006/07 Dubai Shopping
Festival on December 20 with excellent sales reported over the
Middle East Christmas/Eid al Adha period.
After three quarters where demand was adversely affected by price
volatility, the Middle East saw a recovery in Q4 with consumer Demand in other Gulf countries was 12% lower for the year as a
demand 6% higher than a year earlier in tonnage terms (jewellery whole. In Q4 demand was still 4% lower than a year earlier,
up 5%, net retail investment up 14%), equivalent to a 34% increase although the drop was less severe than in the first three quarters.
in dollar terms. The lower prices of September and October, cou- Less promotion in 2006 than in 2005 may be one factor explaining
pled with the Eid al Fitr festival at the end of Ramadan, which why this area performed less well than the UAE.
occurred towards the end of October almost contemporaneously
with Diwali, meant that the quarter started on a very strong note. The Egyptian market also continued to struggle in Q4 with demand
While the rise in the price in November tempered purchasing, the 3% lower than a year earlier in tonnage terms; again, though, this
Hajj season in Saudi Arabia, the start of the Dubai Shopping was a much better performance than the first three quarters when
Festival in late December, and Christmas all helped to boost demand fell by 25%. Higher prices have seen a drift to lower
demand. caratage in some segments of the market. On a more positive note,
the outflow of scrap from Egypt, which had characterised earlier
The strong fourth quarter reduced the fall in demand for the year as periods, appears to have effectively ceased by Q4.
a whole to 16% in tonnage terms, a rise of 13% in dollar terms. The
price volatility of the first part of the year had an adverse effect on Prospects for the first months of 2007 for the region look promising
demand throughout the region. High prices also reduced profit provided the price is not too volatile. In the UAE the 2007 Dubai
margins, particularly on 21 and 22 carat jewellery. This limited the shopping festival, which this year ran from December 20 2006 to
extent to which businesses were prepared to invest in gold jew- February 2, saw very strong demand with recorded sales by
ellery, with other tempting investments on offer in the economic participating jewellers substantially higher than in the successful
and real estate boom, and thus reduced the choice offered to con- 2005 festival (the previous year’s festival having been cancelled
sumers. due to the death of the Ruler). The regions’ economies are strong.
Saudi Arabia benefited in the very first days of the year from healthy
For 2006 as a whole. consumer demand in Saudi Arabia was 20% post-Hajj shopping, while the relaxation of the previously strict
lower in tonnage terms than in 2005, with a sharp 15% rise in Q4 Saudi-isation rules on jewellery retailers also helped the trade. The
partly offsetting the 28% fall in the first three quarters. While the expansion of major jewellery companies such as Damas and
economy was strong, the effect on investors of the sharp decline in l’Azurde into Egypt should help improve the product offering and
the stock market and high inflation, notably higher rents, reduced increase promotional and marketing spending on gold jewellery.
consumer purchasing power for discretionary goods such as jew-
ellery; combined with the price volatility these factors acted as a See the Focus section at the end of this report for more information
strong deterrent to gold purchase. on the Middle East.

In the UAE, demand was 10% lower in tonnage terms than in 2005 Turkey
(Q4 +8%; first three quarters -13%). As in Saudi Arabia, high infla- As in other countries, the jewellery market in Turkey performed bet-
tion and the stock market slump ate into consumer purchasing ter in Q4 than in the first three quarters with offtake 4% higher than a
power, while the death of the Ruler at the beginning of the year, and year earlier, reducing the full-year fall to 15%. In addition to the effects
the official mourning period, effectively cancelled the annual Dubai of price volatility, Turkey also suffered from economic problems dur-

FEBRUARY 2007 16
 Gold Demand Trends
ing the year, while the combination of a bird flu incident, the mur- suffering a severe decrease in sales volume, and those with added
der of a Christian priest and bomb explosions in resorts reduced value in the design, with branded products, or who invest
the number of tourists. Nevertheless, while jewellery demand for substantially in marketing. The latter are enjoying better results.
2006 was lower than in 2004 and 2005 at 165.3 tonnes, it remained Essentially consumers are prepared to pay for a well-designed or
higher than all prior years. innovative product, so that the high price of gold is not a deterrent
in these cases.
The economic problems were positive for coin demand, making
net retail investment at 59.9 tonnes a record for the fifth successive Prospects for 2007 in Italy look more promising than 2006 since
year. Gold’s reputation as an inflation hedge and as a safe haven there have been signs of economic improvement. Employment has
made it an attractive investment. Coin purchase was also boosted risen and the consumer confidence index rose from 109.4 in
by buying in anticipation of converting the coins into jewellery at a October to 112.1 in December, thus providing an improving back-
later date. drop to private consumption.

On a longer-term view, both gold jewellery and net retail investment Jewellery demand in the UK was 18% lower than a year earlier in
are successful markets in Turkey as chart 12 shows. Prospects for Q4 (up just 1% in sterling terms) bringing the decline for the whole
jewellery in 2007 look better than 2006, although, as in other coun- year to 16% (equivalent to a 12% increase in sterling terms). The
tries, high price volatility will hurt demand. jewellery industry generally in the UK is suffering, with hallmarking
figures showing declines for all precious metals although the
declines are relatively muted for the quality end of the market (plat-
inum and 18 carat gold). In addition to competition from other high-
status consumer products (for example flat-screen plasma TVs)
and adverse fashion trends the UK consumer is faced with relative-
ly high price increases in many basic products and services reduc-
ing money available for discretionary products.

Net retail investment in Europe remained negative both in Q4 and

in 2006 as a whole. Positive offtake in Switzerland and other coun-
tries was more than outweighed by continued dishoarding from
France.

USA
The US economy continued to show mixed trends during the fourth
quarter. GDP growth was strong (provisionally estimated at 3.5%
compared to Q3 at an annual rate); so was consumer spending
(provisionally estimated at 4.4% higher than Q3 at an annual rate)
supported by strong wage growth and a fall in unemployment.
Source: GFMS However non-auto retail sales in the three months to December
were marginally lower than in the previous three months even in
value terms.
Europe
Gold jewellery demand in Italy in Q4 was 9% lower than one year Against the background of mixed economic messages and the
earlier in tonnage terms (equivalent to a 7% increase in euro strong gold price, jewellery demand was 15% lower in Q4 than one
terms), a similar result to the rest of the year and bringing the year earlier in tonnage terms, equivalent to an 8% increase in dol-
change for 2006 as a whole to down 10% (a 21% increase in euro lar terms. For 2006 as a whole demand fell 12% in tonnage terms,
terms). The high price of gold continued to act as something of a equivalent to a 20% increase in dollar terms. However industry data
deterrent to purchase although in some ways its impact was felt shows that gold, along with diamonds, gained market share at the
more by the trade (eg by effectively reducing credit capacity) than expense of other forms of jewellery.
by the ultimate consumer.
The dollar figures quoted above refer to the value of the gold used
As in the recent past there continued to be a clear divide between in jewellery. In the US (as in Europe) this is considerably lower than
companies offering more basic products, especially chain, who are the value of retail spending given the substantial mark-ups. Other

FEBRUARY 2007 17
 Gold Demand Trends
retail sales data for the US has shown the retail value of spending research shows that sentiment towards gold remains strongly pos-
on gold jewellery has grown steadily. In 2006, based on three quar- itive and the high gold price, while it may discourage some buying,
ters’ data, the retail value of “primary value gold” (jewellery where also adds to its attraction. It seems likely therefore that the quality
the prime value is in gold rather than other components such as end of the market will continue to perform well even if the lower end
diamonds) jewellery sales rose by 5-6%; this was a faster increase finds conditions more difficult.
than comparable data show for other jewellery products with the
one exception of diamonds. Gold therefore gained market share. Net retail investment in Q4 was just 3.7 tonnes, sharply below offtake
one year earlier. For 2006 as a whole, offtake, at 27 tonnes, was just
During 2006 the high- and mid- end of the market performed better 3% lower than in 2005.
than the mass market. Companies supplying the upper- and mid-
dle-income sectors reported strong sales growth while those sup-
plying more basic products – which tend to be more price sensitive
and where the price is more closely related to the intrinsic value of
gold – had a more difficult time.
The US economy is expected to slow in 2007. However market

FEBRUARY 2007 18
 Gold Demand Trends
HISTORICAL DATA
Table 7: Historical data for identifiable gold demand1

Tonnes $bn
Net retail ETFs & Industrial & Net retail ETFs & Industrial &
Jewellery invest. similar dental Total Jewellery invest. similar dental Total
1999 3,132 359 - 412 3,904 28.05 3.22 - 3.69 34.97
2000 3,196 166 - 451 3,813 28.68 1.49 - 4.05 34.22
2001 3,001 357 - 363 3,720 26.15 3.11 - 3.16 32.42
2002 2,653 340 3 357 3,353 26.42 3.38 0.03 3.55 33.39
2003 2,479 293 39 381 3,192 28.96 3.42 0.46 4.44 37.28
2004 2,611 341 133 411 3,495 34.35 4.48 1.75 5.41 45.98
2005 2,704 388 208 429 3,729 38.64 5.54 2.97 6.14 53.29
2006 2,267 372 265 458 3,362 44.00 7.21 5.14 8.89 65.26

Q1’04 569 82 16 101 769 7.48 1.08 0.22 1.33 10.10

Q2’04 631 86 5 109 831 7.98 1.09 0.06 1.38 10.51
Q3’04 601 76 -2 101 776 7.75 0.99 -0.03 1.30 10.02
Q4’04 810 96 113 100 1,119 11.29 1.33 1.58 1.39 15.60
Q1’05 681 121 89 102 992 9.36 1.66 1.22 1.40 13.63
Q2’05 737 110 -2 114 960 10.13 1.51 -0.02 1.56 13.19
Q3’05 613 85 38 108 844 8.67 1.21 0.53 1.53 11.93
Q4’05 672 72 84 106 934 10.47 1.12 1.30 1.65 14.53
Q1’06 494 81 113 112 800 8.80 1.44 2.01 1.99 14.25
Q2’06 527 91 49 115 782 10.63 1.83 0.99 2.32 15.77
Q3’06 559 99 19 116 793 11.18 1.97 0.38 2.32 15.86
Q4’062 686 101 84 115 987 13.53 1.99 1.66 2.27 19.45

Source: Tonnage data are from GFMS Ltd. Value data are WGC calculations based on GFMS data.
1. See footnotes to Table 1 for definitions and notes. 2. Provisional

FEBRUARY 2007 19
 Gold Demand Trends
FOCUS ON: MIDDLE EAST
The Middle East has a rich and colourful jewellery history. The the region’s most famous female pop stars, which has registered
region has had a high affinity and acceptance of gold for thousands a 1.7 tonne offtake through Damas and non Damas outlets and
of years, and this affinity persists to this day. Countries of the tourism (promotions aimed at tourists to major destinations such
Arabian peninsula have the highest jewellery demand per head of as Dubai).
population in the world (see chart 13, which includes tourist
consumption). Chart 14 shows consumer demand (jewellery and net retail invest-
ment combined) from 1992 in the Middle East both in
tonnage (bars subdivided by country) and, for the total, in US$bn
(Egypt apart, all currencies are pegged to the US dollar). In
tonnage terms the UAE shows a clear upward trend because of the
promotion of the region, and especially of Dubai, as a gold centre
and an increasingly popular tourist destination. Gold demand has
experienced fluctuating fortunes in the other areas shown. 1997
was a peak for demand in both volume and value terms, after which
both diminished. The dollar value of demand started to rise in 2003;
it just surpassed the previous peak in 2005, and the 34% surge in
2006 clearly took it into new territory.

A rich calendar of events including the festival of Eid al Fitr at the

close of the annual Ramadan month of fasting, the annual Hajj
pilgrimage and Umrah, as well as Christmas, Diwali, the shopping
festivals, Valentine’s and Mother’s Day, are typical times for buying
and giving gold jewellery in the Middle East.

A feature of all the Gulf markets is a tendency for women to trade

in a piece of jewellery they no longer find fashionable or appropri-
ate to their lifestyle, or in some cases a locally-manufactured item
Source: WGC calculations based on GFMS and World Bank data may be of such high caratage that it can easily become damaged,
for an alternative. Coins are often given as gifts at important times
In the Gulf and Saudi Arabia rising wealth and a continuing trend such as marriage, childbirth and Hajj. Coins and small bars can
towards a modern lifestyle has ensured a strong market for also be worn as jewellery, usually after being fitted into a locally-
traditional gold jewellery, coupled with growing demand for manufactured necklace or bracelet with specially designed slots to
modern designs, spurred by young affluent consumers. contain them.
Despite the region’s affinity with gold, its appeal had been in
decline, with traditional gold jewellery promotions failing to re- Saudi-isation was a significant problem for retailers in Saudi
ignite consumer interest. Competition from other consumer and Arabia from 2003 until 2005. Many retail employees were non-
lifestyle products such as personal electronics, handbags, shoes Saudi so Saudi-isation, under which these had to be replaced by
etc has also had an impact. Recent research by WGC gave some Saudi nationals created difficulties for retailers who often could not
fascinating insights into why Saudi women bought and wore gold find sufficient trained staff or had to take the time to train Saudis.
jewellery. The Saudis were ahead of all female populations in the Many retailers had to close for a period. The trend was subse-
six major gold markets surveyed, including the US and India, in quently relaxed to allow one non-Saudi per outlet.
buying gold jewellery to be “modern, cool and trendy”. A wish to
be “admired and respected” was also highly important to Saudi
women, with 32% rating this as important compared to a global
average of 18%. The World Gold Council, through its marketing
efforts in the region, has reinvigorated demand by focusing on
three key markets – fashion (making gold more desirable and
contemporary to women), youth (a dedicated campaign called
“Farfasha” in partnership with a leading retailer, featuring one of

FEBRUARY 2007 20
 Gold Demand Trends

Source: GFMS, WGC calculations based on GFMS data

2006 MARKET REPORTS Dubai's gold market remained strong throughout the year and
traders remained upbeat about sales, with a welcome surge in
UAE demand hitting the region during the third and fourth quarters. Total
In the United Arab Emirates, Dubai has long since outgrown its gold sales for the fourth quarter increased 15 per cent on the same
traditional role as simply the principal source of supply for gold period last year, with a spike in gold industry sales during
going into the eager consumer markets of the Indian subcontinent, November. The significant amount of gold traded through Dubai
and has developed rapidly into a sophisticated gold trading centre during 2006, while prices reached historical highs, is a clear reflec-
that can easily hold its own in competition with anywhere in the tion of the region’s dedicated service and attractive retail pricing.
world. Despite consistently high prices, significant growth in the
value of gold imported and exported through Dubai in 2006, The strong finish to 2006 was heavily influenced by increased pur-
reinforced the Emirate's traditional role as the gold centre of the chasing from consumers to celebrate the end of Ramadan and the
region. Gold traded through Dubai reached US$14.75 billion for the follow-on of the Eid al Fitr festival, during which time much gold
full-year 2006, an increase of 37 per cent on 2005. jewellery is bought for gifting. Other occasions such as Christmas,
the New Year, the principal Indian festival of Diwali (the festival of
In line with global trends, gold imports into Dubai declined margin- lights) and the Dubai Shopping Festival (DSF) also contributed to
ally in 2006 from 522 tonnes in 2005 to 489 tonnes. Exports from the rise in sales in the fourth quarter.
Dubai increased by 23 per cent to 274 tonnes. Leading suppliers to
Dubai include the refineries of Switzerland and the UK for bullion, Retail gold sales during the 2006-2007 DSF (which ran from
and increasingly Malaysia for finished jewellery products, while December 20 to February 2) hit a high of AED 1 billion in 2006
Dubai’s top customers include India, Iran and the states that make which is the highest ever since the festival began ten years earlier,
up the Gulf Cooperation Council. The geographical reach of busi- a 25.3% rise on the same festival’s 2005 figures. This year is also
ness from Dubai continues to expand each year. the first year the festival has run for a 45 day period, with one kilo

FEBRUARY 2007 21
 Gold Demand Trends
of gold being raffled each day. Dubai’s gold sector as a whole ben- Egypt
efits tremendously from the DSF due to the increased number of Egypt saw few surprises in 2006. Trading indicated only a modest
shoppers from within and outside the UAE as tourists flock to the response to the fall in the gold price in the second half of the year,
region during this period. while high prices and volatility in the gold price which began late in
2005 had a significant impact on local market scrap exports.
The WGC runs a number of initiatives to drive consumer demand Exports of scrap gold dropped and almost ceased towards the end
for gold in Dubai. In a joint initiative with Damas, the international of the year. All scrap jewellery is normally used to meet local
fashion jewellery retailer, the WGC launched a year long marketing demand for jewellery fabrication. Companies reporting strong
campaign called ‘Farfasha’, aimed at promoting gold jewellery to growth in 2006 did so largely on the back of a reorganisation which
young men and women in the Middle East whose spend was slip- took place in 2005. Sales figures were hit as a result and left 2006
ping to competing products such as Ipods, mobile phones and sales figures appearing healthy. Two of the largest Middle East
PCs. Acclaimed for its successes internationally, the campaign has manufacturers began full operations in Egypt recently.
exceeded sales targets and for the first time delivered a new gold
jewellery consumer – the 15 to 25 year olds. The WGC’s “Gold • L'Azurde (a jewellery manufacturer based in Riyadh, Saudi
Expressions” initiative was also launched for the first time in the Arabia with an output of over 20t in jewellery (mainly 21 ct. and
Middle East during 2006, attracting more than 80 traders from 18 ct.). Their manufacturing unit in Egypt has a target of 5t in
around the region. 2007 (over 70% being 21ct and the remaining 18ct)

Saudi Arabia • A joint-venture between Damas, Taiba and Al Omar. This is a

In the Kingdom of Saudi Arabia, the Ramadan season passed manufacturing (around 6t mainly in 21ct) and retail operation
sluggishly (affected mainly by high gold prices), as well as its (currently 8 outlets and by end of 2007, 14 outlets). Damas is
untimely clash with the back to school season. As price volatility the largest retailer in the Middle East with over 425 retail out-
stabilised further in the last six weeks of the quarter, consumers lets, Taiba is the second largest manufacturer in the Middle
adjusted to the new price level, boosting year-end sales. Shopping East based in Jeddah, Saudi Arabia (12t in 2006 mainly in 21
and consumer spend was especially strong during the Hajj season ct) and Al Omar is a major manufacturer and wholesaler based
(the main Islamic pilgrimage season) resulting in an increase in in Cairo Egypt.
gold jewellery demand, as well as Islamic gold coins.
These two major players are set to bring a better product to the
Despite the effects of high gold prices globally, the demand by market in terms of design and quality together with an improved
workshops for recycled gold for fabrication increased because it is shopping experience through better sales outlets and higher mar-
cheaper than working with gold bullion and the volume of scrap keting budgets. Both will work closely with the WGC to have an
gold jewellery was relatively high. additional positive impact on demand in 2007.

FEBRUARY 2007 22
 Gold Demand Trends
Notes and definitions
All statistics (except where specified) are in Retail investment. For the three bar, coin Industrial demand. The first transformation of
weights of fine gold. and medallions categories this comprises raw gold into intermediate or final products des-
individuals’ purchases of coins and bars tined for industrial use such as gold potassium
Tonne = 1,000 kg or 32,151 troy oz
defined according to the standard adopted by cyanide, gold bonding wire, sputtering targets.
of fine gold.
the European Union for investment gold. This includes gold destined for plating jewellery.
Na = not available
Medallions of at least 99% purity, wires and lumps Dental. The first transformation of raw gold into
… = not applicable
sold in small quantities are also included. In prac- intermediate or final products destined for dental
Mine production. Formal and informal output. tice this includes the initial sale of many coins applications such as dental alloys.
Net producer hedging. The change in the destined ultimately to be considered as numis- Tourist purchases and “luggage trade”.
physical market impact of mining companies’ matic rather than bullion. It excludes second hand Purchases by foreign visitors which are normally
gold loans, forwards and options positions. coins and is measured as net purchases. for their own use or for gifts are included in
Official sector sales. Gross sales less gross “Other” retail investment refers to Western demand in the country of purchase. Bulk pur-
purchases by central banks and other official Europe and North America. It includes net chases by foreign visitors (“luggage trade”) which
institutions. Swaps and the effect of delta hedging investment in physical bullion as defined by the appear to be intended for resale in the visitors’
are excluded. EU (other than new coins which are included in country of origin or a third country are attributed
Old gold scrap. Gold sourced from old fabri- the two coin categories), individuals’ paper trans- to the country in which they are resold.
cated products which has been recovered and actions with a direct physical counterpart plus Revisions to data. All data may be subject to
refined back into bars. Over The Counter activity and changes in metal revision in the light of new information.
Jewellery. All newly-made carat jewellery and account holdings where measurable and retail
gold watches, whether plain gold or combined targeted. Historical data
with other materials. It excludes second-hand Consumer demand. The sum of jewellery Data covering a longer time period will be avail-
jewellery, other metals plated with gold, coins and and retail investment purchases for a country – able on Bloomberg from February 20th; alterna-
bars used as jewellery and purchases funded by ie the amount of gold acquired directly by tively contact GFMS Ltd (+44 (0) 2074781777;
the trading in of existing jewellery. individuals. gold@gfms.co.uk).

Sources, copyright and disclaimers

© 2007 The World Gold Council and GFMS Ltd. All rights reserved. This document is World Gold World Gold Council

Council (WGC) commentary and analysis based on gold supply and demand statistics compiled 55 Old Broad Street

by GFMS Ltd for the WGC along with some additional data. See individual tables for specific London
EC2M 1RX
source information.
United Kingdom

No organisation or individual is permitted to disseminate the statistics relating to gold supply and www.gold.org
demand in this report without the written agreement of both copyright owners. However, the use of
Tel: +44 (0)20 7826 4700
these statistics is permitted for review and commentary (including media commentary), subject to Fax: +44 (0)20 7826 4799
the two pre-conditions that follow. The first pre-condition is that only limited data extracts be used.
The second precondition is that all use of these statistics is accompanied by a clear acknowl- For further information, contact:
edgement of GFMS and, where appropriate, the WGC, as their source. Brief extracts from the com- Matt Graydon
mentary and other WGC material are permitted provided WGC is cited as the source. Head of External Relations
World Gold Council

Whilst every effort has been made to ensure the accuracy of the information in this document, Tel: +44 207 826 4716
neither the WGC nor GFMS Ltd can guarantee such accuracy. Furthermore, the material contained E-mail: matt.graydon@gold.org
herewith has no regard to the specific investment objectives, financial situation or particular needs
Jill Leyland
of any specific recipient or organisation. It is published solely for informational purposes and is not
Economic Adviser to the
to be construed as a solicitation or an offer to buy or sell gold, any gold-related products,
World Gold Council
commodities, securities or related financial instruments. No representation or warranty, either
express or implied, is provided in relation to the accuracy, completeness or reliability of the infor- Tel: +44 (0) 20 782 64709 or
mation contained herein. The WGC and GFMS Ltd do not accept responsibility for any losses or +44 (0) 1689 813397
damages arising directly, or indirectly, from the use of this document. E-mail: jill.leyland@gold.org

FEBRUARY 2007 23