FACTS ‘N’ FIGURES — Gold loses lustre in SE Asia

The economic and currency crisis that has gripped Southeast Asia has had a significant adverse impact on gold demand in the region. Consumers purchases of gold in Thailand, Indonesia, Singapore, Malaysia, Vietnam and South Korea were off markedly in the first quarter.

However, selling back to the market from several countries meant that Southeast Asia became a net supplier to the global market. Net dishoarding reached 268.1 tonnes in the first quarter, reflecting the collection by the Korean government of privately held gold, combined with profit-motivated selling in Indonesia. The bulk of the selling came in the form of high-carat jewelry, whereas very little return of bullion or coins took place.

In South Korea, net dishoarding of 228 tonnes reflected the patriotic “Save the Nation” public gold collection scheme, which started in late December. A total of 3.5 million Koreans participated in the collection campaigns, equivalent to about 23% of all households. The average weight of gold contributed per household was around 65 grams. This situation was clearly exceptional and did not reflect the traditional behavior patterns of these markets.

Out of a total of 250 tonnes collected, the Korean Central Bank purchased about 3 tonnes. Similar schemes were attempted in Myanmar and Malaysia, but were abandoned through lack of interest. The major collection campaigns in Korea were over in mid-March and the trade reported that there were signs of new consumer purchasing towards the end of the quarter.

In Indonesia, there were net gold sales back to the market of 64 tonnes in the first quarter. Despite net dishoarding, some consumer demand remained.

Jewelry demand absorbed roughly 3 tonnes of gold and new investment demand accounted for an additional 5 tonnes of offtake. Reports indicate that people disillusioned with the commercial banking system converted their savings into physical gold. Due to depressed jewelry demand, many retailers melted down at least half their stocks and sold the gold to exporters.

In Thailand, the market continued to be depressed in spite of the Chinese new year, traditionally a peak buying season. Indications are that the decline of the Thai bhat, together with record local gold prices in January, continued to hurt consumer confidence. Despite some earlier distress sales and profit taking, selling back of gold to the market virtually dried up by the end of the quarter compared with levels seen in the second half of last year. Net first-quarter demand totalled 1.5 tonnes, compared with 41.5 tonnes a year ago.

Demand in Vietnam was comfortably above average quarterly levels of recent years. The strong U.S. dollar, coupled with the continued weakness of the international gold price, encouraged some consumers to swap gold for dollars.

Demand in Malaysia continued to be hurt by the fallout from the economic and financial turmoil. Demand fell to 3 tonnes in the first quarter, down 80% from the corresponding period in 1997. Due to the success of gold banking, which was launched last year, investment demand during the quarter increased by 33% to 1.2 tonnes.

In Singapore, gold demand, which had managed to survive 1997 relatively intact, succumbed during the first quarter of 1998. Demand totalled 6.4 tonnes, 28% lower than a year ago. Lower jewelry demand reflected growing consumer caution, while investment demand rose to 1 tonne.

In January and February, imports of gold via Singapore were running at less than half the record levels seen at the beginning of 1997, reflecting lower shipments to other Southeast Asian markets.

— The preceding is an excerpt from Gold Demand Trends, a publication of the World Gold Council.