World gold demand on recovery path, prices to move up on buying pressure

LONDON: Global gold demand is set to pick up with the end of summer doldrums and the last quarter may see more buying than last year as prices have been less volatile, analysts and traders say. Growing acceptance of higher bullion prices and rapid economic growth in key consuming nations would lift gold buying, which is already on a recovery path after falling by nearly 10% last year due to volatile markets. Spot gold traded in a wide range of more than $200 an ounce in 2006, when it hit a 26-year high of $730. But the metal has been less choppy this year, with prices ranging in a band of less than $100. The metal was quoted at around $668 yesterday. “I suspect as we move towards the latter part of the year, the buying pressure will increase in line with the fact that we are heading towards the Christmas period, the Chinese New Year etc.,” said Darren Heathcote of Investec Australia in Sydney. World identifiable demand for gold rose about three% to 822 tonnes in the first quarter of 2007 from the same period last year and by more than 19% to 922 tonnes in the April-June period, according to the World Gold Council. China’s gold demand is likely to remain robust after surging 31% in the first half of 2007, Turkey’s gold imports could set a new record this year and buying in the Middle East may go up with festivals and a rising number of tourists. There has been no sign of a decline in jewellery demand in the US despite the potential for an economic slowdown, but demand in Japan may slip this year due to high gold prices in the local currency, traders and an industry official said. “We are seeing a very significant restocking process going on in the markets, primarily for India, as we are heading to the heavy festival season,” said Andy Montano, a director at bullion dealer ScotiaMocatta in Toronto. India, the world’s top gold buyer consuming a third of world gold output, is expected to see strong buying in the festival season that picks up in September and peaks in November with Diwali – the festival of lights. “Demand for gold will be significant in markets like India, the Middle East and other Asian countries. In these countries, economic and capital markets growth have been very good and investors allocate a surplus of that to gold,” said Gnanasekar Thiagarajan, director at India’s Commtrendz Research Management. India’s economic growth rate of about 8% has put surplus money in the pockets of its middle class, and many are likely to be drawn to the traditional form of savings in gold. Some analysts said gold demand in the festival season this year was likely to rise by 15 to 20% from last year. “The robust economic growth in the Middle East and India has left the economy awash with cash. Since most of these additional funds flow to fresh investments, strong physical demand can be expected,” Pradeep Unni, metals analyst at Dubai’s Vision Commodities Services, said. Jewellery, which accounts for about 75% of Indian gold demand, is also seen as a symbol of wealth in the country and forms an important part of dowry, as parents prefer to gift gold to their daughters for financial security.