Gold’s allure shows no sign of waning as Asian consumers don more jewelry, investors spurn currencies and Swiss vaults bulge with the alternative investment, top gold executives said at the Reuters Mining Summit this week.
“People are buying gold because they don’t want to buy euros, they do not want to buy the dollar. It is going to the Middle East. It is going to India and it is going to China. Those are the big markets right now, and Turkey,” said Pierre Lassonde president of the world’s largest gold producer Newmont Mining Corp (NEM.N).
Jewelry accounts for around 70 percent of gold demand but other rival luxury and status goods also compete for their share of the consumer purse. Despite this, the ability to adorn and invest remains a strong enticement for consumers.
Gold, as a classic hedge against global investors’ worries about inflation or geopolitical instability, has been a beneficiary of the dollar’s three-year decline through the end of 2004, while a rising disposable income in China and India has supported demand.
“Gold jewelry is a lifestyle purchase … China and India will be buoyed by increasing disposable income,” said number 3 gold producer Barrick Gold Corp’s (ABX.TO) CEO Greg Wilkins at the summit at Reuters office in New York.
India’s traditional position of being the world’s biggest consumer of gold may see some decline as the burgeoning middle class of this Asian nation shifts to other investments.
“The demographics are changing and the access to alternatives is changing … India is going to be a tough market to maintain that position,” said Peter Tomsett, chief executive of Canada’s Placer Dome Inc.PDG.TOPDG.N, the world’s fifth-biggest gold producer.
India imports more than two-thirds of its annual demand of about 700 tonnes a year to feed the demand for gold bangles, necklaces and hair ornaments often procured as items to ensure financial security.
But Barrick’s Wilkins said consumers continued to buy gold sometimes opting for a lower grade.
“Whereas in China and India, it’s as much adornment value as it is investment value,” said Wilkins.
Lassonde too was optimistic, encouraged by the prospect of the revaluation of China’s currency.
“If we see a revaluation with the renminbi (yuan), I would think that gold sales in China are going to increase even more substantially,” he said.
“Then India revalues, and all of the countries that are competing against China are all going to revalue which is going to make gold even more attractive in Asia,” said Lassonde.
The China effect was also being felt in the platinum jewelry market, said Keith Rumble, CEO of the world’s number 2 platinum producer, Implats (IMPJ.J)
“The swing factor, the Chinese jewelry market, is holding up remarkably well at these sort of price levels. Beyond our expectation, that is for sure. Even though it has slipped by 10 percent to 15 percent over the last year, but we still think that is a good result,” said Rumble.