February 25, 2005
By Tom Braithwaite
Financial Times

Demand for gold jumped last year as investors, jewellers and industry bought up supplies even as output from mines suffered its biggest fall since the 1940s.

The bullion price, which rose 5 per cent last year and yesterday hit a seven-week high, has been buoyed by the tight supply picture as well as the weaker dollar.

And though gold has lost its lustre for some couples in Europe and the United States - who often prefer platinum wedding rings - global jewellery demand rose 6 per cent to 2,673 tonnes, according to figures released yesterday by the World Gold Council, the industry body funded by the world's top miners.

The Chinese New Year and reports of robust buying in India and Turkey suggested jewellery demand was still strong, said Philip Olden, head of jewellery at the WGC. Sales to countries hit by the tsunami in December had also seen an upturn. "In regions that were affected, [such as] Sri Lanka, gold allows people a store of value in a time of economic uncertainty," he said.

The WGC said a weaker economic outlook could mean slower demand growth in 2005 from those jewellery buyers for whom gold was not a safe haven but a luxury product. This might be offset, though, by a weaker dollar, which would whet the appetite of investors.

Retail investment was the biggest area of demand growth last year, rising 15.1 per cent to 346 tonnes. The supply side shows some signs of picking up, the WGC survey reveals. Production fell by 4.4 per cent last year - the most since 1943 - to 2,478 tonnes.

Output was slashed by a landslide at the mine in Indonesia at the end of 2003, bad weather in the US and Australia and the strength of the rand, which made South African mining concerns less attractive. But output in the last quarter edged up 1.3 per cent year-on-year.

The main area of supply growth in the last quarter came from official sales of bank reserves. These shot up 36.5 per cent to 234 tonnes.

Alan Williamson, precious metals analyst at HSBC, said the sales were at "the highest quarterly level that I can remember" and "certainly not sustainable".

Factors such as jewellery demand, mining output and central bank sales could be useful indicators to producers but were of only minor significance to market players, said Mr Williamson.

"Rather, gold prices are predominantly driven by currency considerations, and while the dollar continues to weaken, gold prices will continue to rise," he said.

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