Investor gold rush ‘offsets’ slower jewel demand: WGC

Investor gold rush ‘offsets’ slower jewel demand: WGC

DUBAI, Feb 24, (RTRS): Voracious hunger for gold-backed securities from investors looking for a shelter from recession should more than compensate slower jewellery buying from hard-up consumers, a World Gold Council (WGC) executive said on Monday. Gold bullion topped $1,000 an ounce on Friday for the first time in nearly a year and has outperformed other asset classes as investors favour the precious metal as an asset likely to hold value during the downturn. “While all this uncertainty is out there, investment demand by all accounts is going to sustain gold demand,” Rozanna Wozniak, investment research manager at the WGC, told Reuters on Monday. “Even as you would expect global economic growth to continue to weigh on industrial jewellery demand.” Investor demand for gold coins, bars and exchange-traded funds continued to surge after posting big gains in the second half of 2008 , Wozniak said. “Bar, coin and ETF demand has remained extremely strong so far in the first quarter,” she said. Gold ETF’s are listed and traded like equities, giving investors exposure to the gold market without taking physical delivery. ETFs currently hold record amounts of physical gold. ETF demand for gold helped gold’s return to $1,000 an ounce. WGC-sponsored ETF’s account for about 85 percent of the market, holding around 1,200 tonnes of gold worth about $38 billion, said the WGC’s Owen Rees, who was also present at the interview. Growth has been rapid since the WGC launched its first gold ETF in 2003. Investors have allocated only a tiny amount of their portfolios to gold, and as risk appetite continues to shrink there is room for bigger flows into ETFs, bars and coins, Wozniak said. Policy “Gold is just a sliver of the global investment pie,” she said. “It’s appropriate for investors to put a bit more into gold as an insurance policy against economic contingencies.” Wozniak estimated only 1-2 percent of global investment portfolios were in gold. Investors were also attracted to gold amid concern about the potential for inflation as central banks finance bailouts and economic stimulus packages, Wozniak said. “One of the big uncertainties we’re facing is what is going to happen now that many government are running such large debt levels,” Wozniak said. “They are undertaking quantitative easing and printing money to get out of it. Gold tends to perform well during periods of high inflation.” Wozniak and Rees declined to comment on the delayed launch of a gold ETF in Dubai. The WGC planned to launch the first such ETF in the Middle East before the end of last year. Even though consumers hard-hit by the recession have cut back on the volume of gold purchased, the value of jewellery demand only fell in two countries last year, Wozniak said. Those were the United States and Britain. “That’s not a bad result given everything that has happened in the global economy,” she said. “...(It) is not just perceived as a luxury item. Jewellery buying has a store of value motive to it, too.” In the Middle East, Egyptian demand grew in 2008 while others saw demand fall. The country has a culture of using high-quality jewellery to store value, Wozniak said. A sharia-compliant tradeable security backed by gold will be launched in Dubai next week, sources familiar with the plan said on Tuesday.  Investors have rushed into gold as a haven from the global economic storm and as insurance against potential future inflation. The price of gold rose above $1,000 an ounce for the first time in almost a year last week.  The Dubai gold security would comply with Islamic investment principles and offer regional investors a way to diversify into gold without actually buying the metal, sources said.  “It’s a tradeable security,” said one source. He and others familiar with the plans declined to give further details ahead of the launch, citing regulatory restrictions.  Launch The head of the World Gold Council (WGC), the chief executive of Nasdaq Dubai and senior officials from the Dubai Multi Commodities Centre (DMCC) would be present at the launch on March 2, the sources said.  The WGC sponsors a number of gold-backed exchange traded funds (ETF) worldwide, accounting for about 85 percent of the market. ETFs are listed and traded like equities, giving investors exposure to the gold market without taking physical delivery. Sponsors buy the gold and store it.  The WGC has long planned the launch of a gold ETF in Dubai, and had hoped to start it before the end of last year. The WGC is a trade group funded by gold mining companies to promote the precious metal.  Dubai has a long-established market for gold bullion and jewellery fuelled by strong demand from the Arab world and India. Dubai also hosts gold futures trading at the Dubai Gold and Commodities Exchange (DGCX). The state-run DMCC holds a majority stake in the DGCX.  State-owned Borse Dubai owns two thirds of Nasdaq Dubai, the smaller of two stock exchanges in the emirate. The Nasdaq OMX Group Inc owns the rest.  Gold production in South Africa slumped by 13.6 percent in 2008 to the lowest level since 1922, South Africa’s Chamber of Mines said Tuesday. The trade group says South Africa, a global leader in the gold industry, produced only 220,127 kilograms (484,279 pounds) last year. The chamber blames an energy crisis that forced mines to shut for a week in January, the first time the mines had closed since the Anglo-Boer war that lasted from 1900 to 1902. The chamber also cites the many mines forced to close temporarily because of miners’ deaths and the fact that lower grade ore is being mined as additional reasons for the production fall. South Africa has the world’s deepest mines. This causes more accidents and makes production the most expensive in the world. China and the United States overtook South Africa as the world’s leading gold producers in 2007 and 2008.