Gold demand trends, worldwide

Four salient trends have emerged in the gold market.

First, attitudes towards gold by the European central banks have been more positive during the past year, judging by official statements and reports in the press.

Second, gold mining companies sold less of their production in the forward and future markets during 1993 than in previous years. According to The Wall Street Journal, several companies have not only stopped selling forward but are buying back existing futures contracts.

Third, Asians are buying gold in large quantities, mainly for investment purposes, even though the price has been moving up.

Fourth, the commodity funds have changed from being a neutral-to-negative investor in gold in 1992 to being a substantial investor in 1993. Some of that investment is speculative (short-term), but some of it is fairly long-term.

During the first three quarters of 1993, the overall demand for gold was up 6% in markets monitored by the World Gold Council, compared with the same period the previous year. U.S. gold jewelry sales grew at a healthy pace, outperforming U.S. (non-auto) retail sales.

The numbers show growth in gold demand in most markets except those affected by recession (such as Continental Europe and Japan). In Far Eastern countries, the middle class is emerging with new wealth, some of which is going into jewelry. Part of this growth is due to structural changes in the market (such as the reform of restrictions on gold purchases), as opposed to those that are merely cyclical.

The gold price has increased since March, 1993, from $326 an oz. to around $390 by year-end. This is a striking contrast to the flat-to-down trend from 1985 to 1993. The combination of the deregulation of markets and growing emerging economies around the world indicates that gold demand will continue to rise in the years to come.

— This is a summary of discussions at the Central Bank Workshop, held Jan. 20 in New York and sponsored by the World Gold Council. Richard Scott-Ram serves as chief economist and strategist in the Americas for the World Gold Council.