w w w. g o l d .

o r g

Gold Demand Trends

FEBRUARY 2008

Full year and fourth Table of

contents
quarter 2007 CLICK ON SUBJECT OR PAGE NUMBER
TO NAVIGATE TO PAGE

Executive summary 1
EXECUTIVE SUMMARY Outlook 2

• At 3,547 tonnes, identifiable gold demand in 2007 was 4% higher than in 2006 in tonnage Demand 4
terms. This was equivalent to a rise of one fifth in dollar terms bringing demand to $79.2bn,
Overall trends 4
a fourth successive annual record. However, after three quarters of strong growth, rising
and volatile prices brought a change of pattern in the fourth quarter when identifiable Jewellery 6
demand fell by 17% in tonnage terms from year-earlier levels. In dollar terms Q4 identifiable
demand was $21.3bn, 7% up on Q4 2006, and just surpassed Q3 2007 to set a new Jewellery demand
quarterly record. & record gold prices 7
• At 2,426 tonnes, jewellery demand was 6% higher in 2007 than in 2006 in tonnage terms and Industrial
22% higher in dollar terms, making a new dollar record at $54bn. However after a strong start & dental 8
to the year, demand in many countries was hit by the price rise towards the end of the year so
that Q4 demand was 17% below year-earlier levels in tonnage terms (up 6% in dollar terms). Investment 8
Continued volatility at record high prices is posing challenges to the jewellery industry.
Supply 11
• 2007 was a year of changing patterns for investment. In the first half year overall investment
was weak; identifiable investment was 22% lower than one year earlier while the statistically Consumer demand
residual “inferred investment” (see box on page 3) was substantially negative. In Q3, while in individual
inferred investment was close to zero, identifiable investment soared as a result of record countries 12
quarterly inflows into gold Exchange Traded Funds (ETF). In Q4 identifiable investment was
more subdued, as retail investors took profits and ETF inflows steadied, but inferred invest- India 13
ment became strongly positive. In dollar terms total net gold investment in Q4 reached just
over $8bn – a quarterly record for the current bull market which started in 2001.
Greater China 14

• The contrasting trends in investment meant that for the year as a whole identifiable invest-
Other East Asia 15
ment was close to 2006 levels in tonnage terms (but 15% higher in value terms) while there Middle East
was net disinvestment, estimated at close to 80 tonnes, in the inferred investment category. & Turkey 16
Total investment for the year was therefore lower than in the record year of 2006.

• Industrial demand rose 2% in 2007 in tonnage terms setting a new annual record at 465
USA 18
tonnes. This was equivalent to a 17% increase in dollar terms. Europe 18
• Gold supply remained tight throughout the year, falling 3% in tonnage terms. Supply from
Historical data 20
the official sector rose due to higher sales within the terms of the Central Bank Gold
Agreement, but this was offset by increased dehedging by gold mining companies and by Notes & definitions 21
lower scrap supplies.

Embargo: not for release before Wednesday, February 13th 2008, 0700 hours New York time © 2008 World Gold Council and GFMS Ltd

FEBRUARY 2008 1
 Gold Demand Trends
• In India gold demand was 7% higher than in 2006 (tonnage • The Middle East showed a similar, but far less extreme,
terms). However, after a strong start to the year it declined pattern to India with a strong start to the year but with demand
sharply as prices rose from September so that in Q4 demand fading in Q4 due to the rising and volatile price. For the year as
was 64% lower than in Q4 2006. The immense influence of price a whole demand in Saudi Arabia rose by 15%, that in the UAE
volatility on Indian demand is illustrated by the fact that while by 7%, just making a new annual record, and that in Other Gulf
offtake for 2007 as a whole equalled the previous record estab- countries combined by 4%. Egypt was the exception in Q4 with
lished in 1998 (a year when offtake was boosted by the impact of demand still rising on the back of economic recovery resulting in
import liberalisation at the end of 1997) offtake in Q4 was the 12% growth for the year as a whole.
lowest fourth quarter since the early 1990s.
• Turkey registered new records for both consumer demand in
• In contrast to India, demand in China continued to grow in Q4 total (up 11% to 249 tonnes) and for net retail investment (up 2%
despite the rapidly rising price. For the year as a whole it to 61 tonnes) while jewellery demand was second only to 2005.
amounted to 326 tonnes, up 26% on 2006. Jewellery demand The appreciation of the Turkish lira offset much of the rise in the
reached 302 tonnes for the full year enabling China to overtake gold price during the year so that jewellery demand remained
the USA to become the world’s second largest gold jewellery strong in Q4.
market in volume terms. Demand in Hong Kong rose 15% in
2007 and that in Taiwan by 3%. • A slowing economy, a poor retail environment and the high gold
price hurt jewellery demand in the USA which fell 14% from 2006
• Japanese investors remained net profit takers in 2007, levels. The decline intensified in Q4 due to the worsening
reducing their holdings by 56 tonnes in order to take advantage economic situation and poor retail sales in the holiday period.
of the sharp rise in the gold price of recent years. Jewellery
demand fell 2%. Consumer demand in Vietnam was 15% lower • Jewellery demand also continued its ongoing decline in Italy
than the exceptionally strong level achieved in 2006; that in (down 9% year on year) and the UK (down 8%). In contrast,
Indonesia rose 4%. strong growth continued in Russia with jewellery demand
rising 11% to set a further annual record. Growth remained
vibrant throughout the year with demand in Q4 nearly 25%
higher than a year earlier – making Russia the fastest growing
country for the quarter.

Source: GFMS Ltd, WGC Source: GFMS Ltd, WGC

FEBRUARY 2008 2
 Gold Demand Trends

Outlook
Following a fourth quarter which brought a record (for recent years) level of investment into gold in dollar terms,
investor interest has remained high in the first weeks of 2008.

This is likely to continue at least as long as the current financial and economic worries persist. The more speculative
elements of investment are likely to subside once economic confidence returns. We believe, however, that there
remains plenty of scope for further “buy and hold” investment, particularly from those sectors of the investment
market which have so far made only tentative forays into gold (and other commodity) investing.

The combination of record prices and high volatility is a deterrent to jewellery buying by both the trade and
consumers. This form of demand will not therefore be strong in the first quarter of 2008 and will remain under pressure
while prices remain volatile.

Sentiment towards gold remains positive, however, and demand will return once prices stabilise. If it stabilises at
higher prices than in 2007 there will inevitably be some attrition in jewellery demand due to gold becoming less afford-
able, particularly to those with more limited budgets, but past experience suggests that this could be limited. See the
box on page 7 for further commentary.

The figures used in this report

The supply and demand data in this report are based on For global or regional value figures, the US dollar is used
tonnage figures compiled independently for the WGC by as the measure. Apart from the fact that it is the world’s
GFMS Ltd. Any information from alternative sources is clearly major currency, most of gold’s main markets are in countries
indicated. Value figures for demand and supply are calculated whose currencies are either linked, tightly or loosely, to the
by the WGC from the GFMS data. dollar or where exchange rates against the dollar do not
normally change greatly from year to year, other than in line
We are sometimes asked why we comment on value figures with inflation differentials. The use of the US dollar is thus
for demand as well as tonnage instead of just relying on appropriate.
tonnage figures, as is more common in most commodity
markets. There are two main reasons for this. First, over 85% Not all investment flows can be measured and those that
of demand is discretionary spending either on a consumer cannot be are proxied by the statistical residual from the
product (jewellery) or as an investment. In both these markets supply and demand balance, known as “inferred investment”;
it is customary to comment on value figures. Second, since this contains stock movements and other elements but it is
demand (as statistically defined) has to equal supply, changes usually dominated by those investment flows not susceptible
in demand can simply reflect growth or contraction in the to statistical capture.
supply of gold to the market and are thus a poor guide to
consumers’ or investors’ appetite for gold. Thus commenting
on both value and on tonnage provides a more holistic
picture.

FEBRUARY 2008 3
 Gold Demand Trends
DEMAND
Table 1: Identifiable gold demand1 (tonnes)

% ch
% ch Q4'07
2007 vs vs
2005 2006 20072 2006 Q4'06 Q1'07 Q2'07 Q3'07 Q4'072 Q4'06

Jewellery consumption 2,707.2 2,283.0 2,425.7 6 708.6 565.2 671.0 603.8 585.7 -17

Industrial & dental 430.6 458.0 465.5 2 115.7 115.9 119.0 117.7 112.9 -2
Electronics 280.4 306.1 314.6 3 76.2 77.2 80.2 79.8 77.4 2
Other Industrial 87.8 91.2 93.2 2 24.3 23.9 24.3 23.7 21.2 -13
Dentistry 62.4 60.7 57.7 -5 15.2 14.7 14.5 14.2 14.2 -6

Identifiable Investment 593.6 659.0 656.1 0 189.2 144.6 124.9 242.2 144.5 -24
Net retail investment 385.5 398.9 405.3 2 110.0 108.2 127.4 102.7 67.0 -39
Bar Hoarding 263.7 232.3 243.3 5 74.9 65.3 79.5 59.4 39.1 -48
Official Coin 110.9 129.1 125.4 -3 22.9 34.2 33.9 34.4 22.9 0
Medals/Imitation Coin 37.0 59.4 72.3 22 20.9 20.2 26.0 17.6 8.6 -59
Other identified retail invest.3 -26.1 -21.9 -35.8 … -8.7 -11.5 -11.9 -8.7 -3.7 …
ETFs & similar products 4 208.1 260.2 250.8 -4 79.1 36.4 -2.6 139.5 77.5 -2

Total identifiable demand 3,731.4 3,400.0 3,547.3 4 1,013.4 825.7 915.0 963.6 843.0 -17
London pm fix, $/oz 444.45 603.77 695.39 15 613.21 649.82 666.84 680.13 786.25 28

Source: GFMS Ltd. 1. Identifiable end-use consumption excluding central banks. 2. Provisional . 3. “Other retail” excludes bar and primary
coin offtake; it represents mainly activity in North America and Western Europe. 4. Exchange Traded Funds and similar products including:
LyxOR Gold Bullion Securities, Gold Bullion Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold
Trust, Zürcher Kantonalbank Gold ETF, Istanbul Gold ETF, ETF Securities, Central Fund of Canada and Central Gold Trust.

Overall trends
Identifiable gold demand was 3,547.3 tonnes in 2007, 4% higher rush into gold and this pushed the price sharply higher. Jewellery
than in 2006. With the annual average gold price having risen 15% buyers retreated in the face of rapidly rising prices.
in dollar terms, this was equivalent to a new annual record in dollar
terms at $79.2bn – one fifth higher than the level of spending in Thus in Q4 the demand picture was very different from the
2006. Jewellery demand was 6% higher in 2007 in tonnage terms earlier part of the year. The impact of the rising and volatile price
but 22% higher in dollar terms; industrial demand was 2% higher in on the jewellery market, and also on some retail investment
tonnage terms (making a new annual record) and 17% higher in dol- markets, was such that identifiable demand was 17% below Q4
lar terms. The picture of identifiable investment was more mixed; 2006 levels in tonnage terms and just 7% higher in dollar terms
overall tonnage was essentially unchanged from 2006 but this trans- (although this rise was sufficient to set a new quarterly dollar
lated into a 15% increase in value terms. Spending on all these three record of $21.3bn). Again the comparison is exaggerated by the
categories set new dollar records. Identifiable gold demand 2006 demand pattern, although this time it is worsened, since
excludes those elements of demand which cannot be directly meas- Q4 2006 was an exceptionally strong quarter. Interestingly,
ured as well as a statistical residual – this is considered as “inferred identifiable investment as a whole fell even more sharply from
investment” since the main missing element consists of institutional year-earlier levels than did jewellery – 24% down on a tonnage
investment flows which cannot be statistically captured. basis and 2% down in dollar terms. The reason for this is that
identifiable investment consists either of retail investment
The year can be divided into two parts. For the first eight months categories where investors tend to buy when the price is low and
gold prices were relatively stable (see chart 3) and investor interest, react to a sharp rise in the price by holding back or taking
outside one or two important retail markets, was limited. This price profits, or to categories, including gold Exchange Traded Funds,
background was supportive to jewellery demand which, during the where offtake was little changed from one year earlier. The real
first three quarters, was 17% higher than a year earlier, albeit the surge in investment demand in Q4 came in those forms which
comparison is exaggerated since jewellery demand in the first part cannot be directly measured and therefore are shown in the
of 2006 was disrupted by price volatility. All changed after the finan- “inferred investment” category (see section on Investment below
cial crisis struck in August. From September investors started to for more details).

FEBRUARY 2008 4
 Gold Demand Trends

Table 2: Identifiable gold demand1 ($m)

% ch
% ch Q4'07
2007 vs vs
2005 2006 20072 2006 Q4'06 Q1'07 Q2'07 Q3'07 Q4'072 Q4'06

Jewellery consumption 38,670 44,475 54,203 22 13,970 11,808 14,387 13,203 14,805 6

Industrial & dental 6,153 8,902 10,400 17 2,281 2,421 2,552 2,573 2,853 25
Electronics 4,010 5,949 7,034 18 1,502 1,613 1,720 1,745 1,957 30
Other Industrial 1,251 1,773 2,076 17 478 500 521 518 537 12
Dentistry 892 1,179 1,290 9 300 308 311 310 360 20

Identifiable Investment 8,485 12,710 14,647 15 3,730 3,021 2,678 5,296 3,653 -2
Net retail investment 5,458 7,767 8,931 15 2,169 2,261 2,732 2,245 1,693 -22
Bar Hoarding 3,720 4,532 5,357 18 1,476 1,365 1,704 1,299 989 -33
Official Coin 1,571 2,510 2,773 10 452 714 726 753 580 28
Medals/Imitation Coin 528 1,158 1,580 36 412 422 557 385 217 -47
Other identified retail invest.3 -360 -433 -779 … -171 -239 -255 -191 -93 …
ETFs & similar products 4 3,027 4,943 5,715 16 1,560 760 -55 3,050 1,960 26

Total identifiable demand 53,308 66,086 79,249 20 19,980 17,250 19,617 21,072 21,311 7

Source: WGC calculations based on data from GFMS Ltd. 1. Identifiable end-use consumption excluding central banks. This table was formerly
called "End-use gold demand". 2. Provisional . 3. “Other retail” excludes bar and primary coin offtake; it represents mainly activity in North
America and Western Europe. 4. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold Bullion
Securities (Australia), streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, ZKB Gold ETF, GOLDIST,ETF Securities,
Central Fund of Canada and Central Gold Trust.

Source: Global Insight, WGC

FEBRUARY 2008 5
 Gold Demand Trends
Industrial demand remained fairly steady throughout the year. In Q4
demand was just 2% lower than year-earlier levels in tonnage terms
and 25% higher in dollar terms.

Source: GFMS Ltd, WGC

Undoubtedly movements in the gold price were the most important

factor in determining the level of jewellery buying. As this report has
Source: GFMS Ltd, WGC frequently pointed out, while the price level certainly has an influence
on the quantity of gold jewellery that is bought, in many countries the
Chart 4 puts trends in 2007 into the longer-term context. Overall presence or absence of price volatility, or short-term price move-
supply to the market remained heavily constrained in 2007, falling ments, are more immediately influential factors. In Asia and the
by 4% from an already tight 2006 level. Overall demand in tonnage Middle East, which together account for around two thirds of
terms therefore remained constrained as well, since gold can not be jewellery demand, gold jewellery is typically sold by weight at a price
purchased if it is not available in the market. Over recent years that varies from day to day in line with the international gold price and
investment has taken a growing share of available gold. With indus- with a relatively small mark-up over the international price. In these
trial demand showing slow but generally steady growth, it is jew- circumstances consumers will hold back from buying when the price
ellery demand that has been squeezed in tonnage terms in recent is volatile lest they find later that they could have bought at a more
years. However, the underlying strength of potential jewellery advantageous price had they waited a while. Buyers return when the
demand has been so strong that this has only been achieved by the price appears to be more stable.
sharp rise in the price that has occurred. This has resulted in the
strong rise in the value of overall gold demand which has more than Chart 5 shows jewellery demand (in tonnes) by quarter plotted
doubled since the beginning of the decade. against the gold price. Demand is seasonal and subject to other vari-
ations but the impact of the sharp rise in the price that occurred
Jewellery between September 2005 and May 2006 can be seen; the rise that
In tonnage terms, overall jewellery demand in 2007 was 6% higher started in September 2007 is having a similar effect. In the first
than in 2006; however, in Q4 2007 it was 17% lower than in Q4 2006. months of 2007 prices were relatively stable and, importantly, below
Neither picture, however, was uniform across all countries. The out- the peaks reached in 2006 (see chart 2) providing what appeared to
turn varied according to economic circumstances, the differing ways be an opportune period for purchase. Hence the strength of demand
in which demand in different countries reacts to price volatility and, during the first eight months of the year until it was ended by the
in a few cases, to exchange rate movements. price rise.

FEBRUARY 2008 6
 Gold Demand Trends
India is undoubtedly the country most affected by price volatility and Most of gold jewellery’s main markets have enjoyed good economic
the 40% year-on-year increase (tonnage terms) recorded in the first growth and rising consumer purchasing power which has been sup-
three quarters taken together turned into a 67% fall for the fourth portive to jewellery demand. This is true of China and Hong Kong,
quarter. The Middle East is also affected by price volatility although India, Vietnam, Turkey and much of the Middle East. Russia, where
its impact is less dramatic; in Saudi Arabia and the Gulf a 16% demand is soaring, is a particular example. Egypt is benefiting from
increase in the first three quarters became a 9% fall in the fourth. economic recovery. The US is currently an exception while Italy has
Consumers in China, in contrast, appear less affected – a 26% faced adverse circumstances for some time and the UK is faltering.
increase in the first three quarters was only dampened to an 18% Finally the Turkish lira has appreciated substantially against the US
increase in the fourth. dollar so that it was only right at the end of the year that the gold price
in lira exceeded peaks reached in 2006. This enabled jewellery
In North America and Europe, where retail prices do not vary from demand to remain buoyant in Q4.
day to day, the price rise has had more of an effect on demand than
price volatility, although distributors and retailers have had to adjust
inventory levels and trade prices.

Jewellery demand and record gold prices

The rising gold price may please investors but for gold of good economic growth. Both years had relatively
jewellers times are difficult. With prices having risen more stable gold prices for the first eight months followed by a
than three-fold since the beginning of the decade, includ- sharp rise. Between July 2005 and January 2006 prices
ing a $220-dollar leap in the last six months alone, both rose by 30% (and went on to rise even further before sub-
trade and consumers are hesitant to commit to purchas- siding); between July 2007 and January 2008 they rose
ing gold jewellery while the price position remains both by 33% (monthly averages). Demand was badly hit
high and unstable. between Q4 2005 and Q2 2006 but subsequently recov-
ered. Jewellery offtake in 2005, with an average price of
We have consistently stated that a steady and gradual $444/oz, was 2,707 tonnes. Jewellery offtake in 2007,
rise in price is no deterrent to jewellery demand since it with an average price of $695/oz ($251 or 56% higher)
enhances the investment element of purchase. When was 2,425 tonnes. Despite the substantial price rise
incomes are rising in major markets – and, the current sit- demand was just 282 tonnes, or a little over 10%, less.
uation in the US apart, most of gold’s main markets have
It is inevitable that jewellery demand (and indeed identifi-
benefited and are benefiting from strong economic
able demand as a whole) will be low in the first part of
growth – rising purchasing power can overcome the
2008 and while prices remain high and volatile. Assuming
deterrent effect of rising prices to a not inconsiderable
prices stabilise at some point, buyers will adjust to the
extent. It is also true that the jewellery industry has learnt
new price and demand will return. If prices were to sta-
a great deal about its customer base in recent years –
bilise at present day levels there would be a noticeable
both product offering and marketing have improved.
decline in demand from last year’s outturn, just as there
However, the challenges currently faced are not trivial.
was between 2005 and 2007. All reports speak of senti-
Price volatility is a particular problem both for its effect on
ment towards gold remaining very positive in key markets
customers in Asia and the Middle East and for the man-
so it is a reasonable assumption that the decline would
agement and financing problems it poses. Not all of the
be limited (although any noticeable decline will still
“missed” buying during periods of price volatility is lost
inevitably pose problems for the jewellery industry). The
as some returns when prices are more stable, but some
real danger to jewellery demand would only come from a
buyers will turn to other products.
period of prolonged volatility, especially at record high
There are many parallels between 2007 and 2005 and the price levels, which may not allow consumers and trade
experience of the two years is relevant. Both were years buyers time to adapt to new levels.

FEBRUARY 2008 7
 Gold Demand Trends
Industrial and dental demand in the fourth quarter slid 13% year-on-year to 21.2 tonnes.
Demand for gold for used in industrial and dental applications The quarterly decline was largely attributable to the Indian market,
reached a new record at 465.5 tonnes in 2007, a rise of 2% on 2006. which suffered a significant fall in the production of jari (gold thread
Fourth quarter demand was lower than it had been the previous used particularly in wedding saris) in response to volatility in the
year however, as a small rise in demand in the electronics sector gold price. In contrast, Italy and China saw a solid increase in this
was more than offset by declines in both the dental and ‘other sector in a continuation of the trend of increased Gold Potassium
industrial’ categories. Demand in Q4 slipped 2% to 112.9 tonnes. Cyanide (GPC) production. As well as being used in industrial appli-
cations GPC is used in the electro-forming of jewellery, a process
that reduces the overall weight of jewellery items.

2007 witnessed a further decline in demand from the dental sector,

taking annual demand to a 20-year low of 57.7 tonnes. The long-
term decline in dental demand is being driven primarily by the sub-
stitution of more affordable alternatives to gold, such as base met-
als and ceramics. Surging gold prices throughout this year have
therefore only served to exacerbate this trend.

Investment
2007 started as a mixed year for gold investment with strong rises
in retail investment coinciding with relatively small inflows into
Exchange Traded Funds and substantial disinvestment from the
“inferred investment” category. (“Inferred investment”, which is
calculated as a statistical residual, includes the majority, although
not all, of short-term speculative flows and is by nature an erratic
series.) Total (net) investment for the first half year, adding all these
elements together, amounted to just 32.5 tonnes, or $663m. The
approach, and then onset, of the financial markets crisis in the third
Source: GFMS Ltd quarter changed this by sharply reviving interest among many

The electronics sector was the only industrial segment to experi-

ence a rise in demand in both the fourth quarter and the year as a
whole, although the pace of growth was notably slower than it has
been in recent years. Annual demand amounted to 314.6 tonnes,
3% higher than 2006. Demand for the fourth quarter meanwhile, was
up 2% year-on-year at 77.4 tonnes. Demand was driven by rising
sales of semiconductors, primarily due to rising demand for prod-
ucts such as flat panel displays and MP3 players, which have a high
semiconductor content. Although record gold prices do not seem to
have taken a considerable toll on this sector as yet, further price
rises are likely to encourage equipment manufacturers to seek tech-
nology solutions that reduce their dependence on gold. Should the
current climate of economic uncertainty persist through 2008 then a
further slowdown across the sector is likely.

The ‘other industrial’ category, which encompasses various indus-

trial applications and decorative uses of gold, tends to be much
more sensitive to changes in the gold price and therefore the record
prices seen in the fourth quarter resulted in a decline in demand.
2007 annual demand inched up by 2% to 93.2 tonnes, while Source: GFMS Ltd

FEBRUARY 2008 8
 Gold Demand Trends
Table 3: Investment demand (tonnes except where specified)

% ch % ch
2007 vs Q4'07 vs
2005 2006 20071 2006 Q4'06 Q1'07 Q2'07 Q3'07 Q4'071 Q4'06

Identifiable Investment 593.6 659.0 656.1 0 189.2 144.6 124.9 242.2 144.5 -24
Net retail investment 385.5 398.9 405.3 2 110.0 108.2 127.4 102.7 67.0 -39
Bar Hoarding 263.7 232.3 243.3 5 74.9 65.3 79.5 59.4 39.1 -48
Official Coin 110.9 129.1 125.4 -3 22.9 34.2 33.9 34.4 22.9 0
Medals/Imitation Coin 37.0 59.4 72.3 22 20.9 20.2 26.0 17.6 8.6 -59
Other identified retail invest.2 -26.1 -21.9 -35.8 … -8.7 -11.5 -11.9 -8.7 -3.7 …
ETFs & similar products 3 208.1 260.2 250.8 -4 79.1 36.4 -2.6 139.5 77.5 -2

"Inferred investment"4 280.5 182.3 -78.6 … 3.7 -84.4 -152.6 -16.2 174.6 …

"Total" investment 874.1 841.3 577.5 -31 192.8 60.2 -27.7 225.9 319.1 65
"Total" investment, $m 12,959 16,370 13,671 -16 3,802 1,257 -594 4,941 8,067 112

Source: GFMS Ltd. 1. Provisional . 2. “Other retail” excludes bar and primary coin offtake; it represents mainly activity in North America and
Western Europe. 3. Exchange Traded Funds and similar products including: LyxOR Gold Bullion Securities, Gold Bullion Securities (Australia),
streetTRACKS Gold Shares, NewGold Gold Debentures, iShares Comex Gold Trust, Zürcher Kantonalbank Gold ETF, Istanbul Gold ETF, ETF
Securities, Central Fund of Canada and Central Gold Trust. 4. See notes to table 4.

investors. In Q3 this was mainly apparent in Exchange Traded For 2007 in total, net retail investment (defined to exclude invest-
Funds (ETFs) and similar products which enjoyed quarterly-record ment via Exchange Traded Funds which is discussed separately)
inflows in both tonnage and value terms (139.5 tonnes and amounted to 405.3 tonnes, 2% higher than in 2006 (and 14%
$3.1bn). With “inferred investment” only mildly negative over the higher in dollar terms). Four countries account for the bulk of this
quarter as a whole and retail investment holding up, total invest- category and these, together with China where the process of
ment for the quarter reached 225.9 tonnes or $4.9bn. de-regulation is finally lifting the barriers to such investment, are
shown in chart 8. Overall net retail investment has been on an
Although the rise in the price in Q4 prompted some profit taking upward trend in recent years driven by the growth in India, Turkey
among retail investors in bars and coins, it served to intensify and Vietnam. Expansion in these three countries has been more
interest among other investors. Net inflows into Exchange Traded than sufficient to counter the impact of net Japanese retail invest-
Funds continued at a high level, although they did not reach the ment swinging from positive to negative from 2006 as investors
record levels achieved in Q3. However, “inferred investment” flows started to take profits.
turned sharply positive with net inflows of around 175 tonnes. Part
of the net inflows in Q4 were associated with a build up of futures In 2007 growth was fastest in medals and imitation coins (up 22%
positions on the COMEX, CBOT and TOCOM exchanges; there due to rapid growth in India which accounts for the bulk of this
was also a noticeable increase in allocated gold positions, category). Bar hoarding rose by 5%, with official coins falling by
presumably reflecting a desire for additional security in the climate 3% as demand in the USA (not shown in the chart) fell back from
of financial uncertainty. 2006 levels which had been boosted by the introduction of the
Buffalo coin.
Total investment in Q4 is estimated at 319.1 tonnes. This is
equivalent to a substantial $8.1bn - the largest quarterly net inflow Growth in 2007 was concentrated into the first half of the year. In
of investment into gold since the current bull market started. Q4 net retail investment, at 67.0 tonnes, was 39% lower than in
Q4 2006 as holders took profits. The fall was concentrated in
For the year as a whole total gold investment amounted to 577.5 medals and imitation coins and in bar hoarding and reflected
tonnes; due to the negative “inferred investment” figures in the first lower net investment in India and Vietnam along with an intensifi-
part of the year, this was 31% lower than the 841.3 tonnes cation of selling back in Japan. Investment in official coins was
recorded for 2006 and 16% lower in dollar terms. As noted earlier, unchanged from a year earlier.
identifiable investment was almost unchanged in tonnage terms
from 2006 levels, and 15% higher in dollar terms.

FEBRUARY 2008 9
 Gold Demand Trends

Source: Bloomberg; individual companies

Source: GFMS exchanges in 11 countries. They are therefore a rapidly maturing

product, increasingly familiar to a range of investors, although
Investment in Exchange Traded Funds (ETFs) and similar there is still scope for substantial growth. There has been consid-
products in 2007 amounted to 250.8 tonnes, 4% lower than in erable speculation by market commentators on the possible move
2006, representing a yearly rise in value terms of 16% or $773m. by pension funds towards commodities and gold. While precise
(The statistics in this issue of GDT exclude the newest fund – information is difficult to come by it appears that actual investment
Xetra-Gold – which was launched on the Xetra trading platform of to date by such entities has been limited and that it is often chan-
the Deutsche Börse, and also on the Frankfurt Stock Exchange, on nelled via specialist funds or through exposure to commodity
December 14; this will be added in next quarter. At the beginning indexes. There have, however, been occasional instances of
of February the fund held 3.5 tonnes.) recent investment in ETFs by such bodies.

At the end of 2007 holdings in gold Exchange Traded Funds In general ETF investors have been long-term holders. However
proper (excluding Xetra-Gold) amounted to 869 tonnes, worth there is a certain amount of more speculative activity in the
over $23bn; this had risen to 897 tonnes (including Xetra-Gold) by streetTRACKS fund (GLD). This can be seen from chart 9 which
the end of January 2008. shows the evolution of holdings in “GLD” and other ETFs
combined since the end of 2005. In percentage terms, overall
Gold ETFs were first brought to the market in 2003 with the largest growth in the two categories has been broadly similar over the
fund, streetTRACKS Gold Shares (GLD) launched in November period shown, each growing by over 140%, but month to month
2004. These and additional similar products are now listed on dips and recoveries are more evident in GLD than the other funds.

FEBRUARY 2008 10
 Gold Demand Trends
SUPPLY
Table 4: Gold supply and demand (WGC presentation)
Note: jewellery data in this table refer to fabrication not consumption and quarterly data differ from the data in Tables 1 and 2.

% ch
% ch Q4'07
2007 vs vs
2005 2006 20071 2006 Q4'06 Q1'07 Q2'07 Q3'07 Q4'071 Q4'06

Supply
Mine production 2,550 2,481 2,447 -1 663 587 611 631 618 -7
Net producer hedging -86 -373 -400 … -32 -137 -182 -31 -50 …
Total mine supply 2,464 2,108 2,047 -3 631 450 429 601 568 -10
Official sector sales 2
662 367 485 32 59 73 145 169 98 65
Old gold scrap 886 1,107 937 -15 242 237 219 204 277 14
Total Supply 4,012 3,582 3,469 -3 933 760 792 973 943 1

Demand
Fabrication
Jewellery 2,707 2,283 2,426 6 624 584 701 630 511 -18
Industrial & dental 431 458 465 2 116 116 119 118 113 -2
Sub-total above fabrication 3,138 2,741 2,891 5 740 700 820 747 624 -16
Bar & coin retail investment3 412 421 441 5 119 120 139 111 71 -40
Other retail investment -26 -22 -36 … -9 -11 -12 -9 -4 …
ETFs & similar 208 260 251 -4 79 36 -3 139 78 -2
Total Demand 3,731 3,400 3,547 4 929 844 945 989 769 -17

"Inferred investment"4 280 182 -79 … 4 -84 -153 -16 175 …

London PM fix (US$/oz) 444.45 603.77 695.39 15 613.21 649.82 666.84 680.13 786.25 28

Source: GFMS Ltd. Data in this table are consistent with those published by GFMS but adapted to the WGC’s presentation. The “inferred invest-
ment” figure differs from the “implied net (dis)investment” figure in GFMS’ supply and demand table as it excludes “ETFs and similar” and
“other retail investment”. 1. Provisional. 2. Excluding any delta hedging of central bank options. 3. Equal to the sum of the first three rows in
Table 1. 4. This is the residual from combining all the other data in the table. It includes institutional investment other than ETFs & similar,
stock movements and other elements as well as any residual error. In some previous editions of GDT it was referred to as the “balance”.

Supply continued to tighten in 2007, falling 3% below 2006 levels to seen higher levels of selling under the Central Bank Gold
3,469 tonnes. Mine output was little changed for the year. An Agreement than 2006 primarily as Switzerland started a new sales
increase in de-hedging, which rose to 400 tonnes from 373 tonnes, programme, disposing of 145 tonnes during the year, and as
and a 15% fall in scrap supply were largely, but not entirely offset, Spain, which had been an occasional seller in earlier years,
by a higher level of central bank sales. undertook a more vigorous disposal programme between March
and July. Outside the CBGA there was on balance a small amount
Total supply in Q4 was just one percent higher than in Q4 2006 but of net buying during 2007 with Qatar, Belarus and Kazakhstan
this conceals some sharper movements in the individual compo- among the countries adding to their gold stocks.
nents. Mine output was 7% lower primarily due to falls in the US,
Indonesia and South Africa (the last mainly due to closures related Scrap supply in Q4 was 14% higher than a year earlier as a result of
to the country’s efforts to improve mine safety). the price rise. However the increase was lower than might be
expected and levels remained below those experienced in the first
De-hedging is provisionally estimated to have been around 50 half of 2006. A general belief that the price could rise further appears
tonnes in the quarter, more substantial than a year earlier but well to have been the main reason for the relatively limited quantity that
below the much higher levels recorded in the first half of the year. came to the market; in addition much of the “loose” gold was prob-
ably already shaken out in 2006.
Net official selling in Q4 amounted to 98 tonnes, nearly two thirds
higher than the very low figure recorded in Q4 2006. 2007 has

FEBRUARY 2008 11
 Gold Demand Trends
CONSUMER DEMAND TRENDS IN INDIVIDUAL COUNTRIES 1

Table 5: Consumer demand trends in selected countries: 2006 and 2007 (tonnes)

2006 20071 % change 2007 vs 2006

Net retail Net retail Net retail
Jewellery invest. Total Jewellery invest. Total Jewellery invest. Total
India 526.2 195.7 721.9 558.2 215.4 773.6 6 10 7
Greater China 275.0 19.3 294.3 331.0 32.3 363.3 20 68 23
China 244.7 14.9 259.6 302.2 23.9 326.1 23 60 26
Hong Kong 13.1 0.4 13.5 14.4 1.0 15.5 10 178 15
Taiwan 17.2 4.0 21.2 14.4 7.4 21.8 -16 85 3
Japan 32.8 -45.7 -12.9 32.2 -56.3 -24.1 -2 … …
Indonesia 57.7 -1.0 56.6 58.3 0.5 58.7 1 … 4
Vietnam 22.1 69.5 91.6 21.6 56.1 77.7 -2 -19 -15
Middle East 296.1 19.2 315.4 328.1 20.4 348.4 11 6 10
Saudi Arabia 104.3 8.0 112.3 120.2 9.2 129.4 15 15 15
Egypt 60.0 0.6 60.5 67.3 0.7 68.0 12 29 12
UAE 92.4 8.2 100.5 99.8 7.5 107.3 8 -8 7
Other Gulf 39.5 2.6 42.1 40.8 2.9 43.7 3 14 4
Turkey 165.3 59.9 225.2 188.1 61.1 249.3 14 2 11
Russia2 69.5 … 69.5 77.0 … 77.0 11 … 11
USA 306.1 32.4 338.5 262.9 15.2 278.1 -14 -53 -18
Italy2 64.8 … 64.8 58.8 … 58.8 -9 … -9
UK2 52.5 … 52.5 48.6 … 48.6 -8 … -8
Europe3 … -12.3 -12.3 … -5.9 -5.9 … … …
Total above 1,868.1 337.0 2,205.1 1,964.8 338.9 2,303.7 5 1 4
Other & stk ch 414.9 61.9 476.8 460.9 66.4 527.3 11 7 11
World Total 2,283.0 398.9 2,681.9 2,425.7 405.3 2,831.0 6 2 6
Source: GFMS Ltd. 1. Provisional. 2. Jewellery only. 3 Net retail investment only. Europe excludes Germany

Table 6: Consumer demand trends in individual countries: Q4 2007 (tonnes)

Q4 2006 Q4 20071 % change Q4 2007 vs Q4 2006

Net retail Net retail Net retail
Jewellery invest. Total Jewellery invest. Total Jewellery invest. Total
India 165.4 64.7 230.1 54.0 29.9 83.9 -67 -54 -64
Greater China 73.5 6.4 79.8 84.5 9.8 94.3 15 53 18
China 65.5 5.0 70.5 77.3 7.5 84.8 18 50 20
Hong Kong 3.7 0.2 3.9 3.8 0.2 4.0 4 10 4
Taiwan 4.3 1.2 5.5 3.4 2.0 5.4 -21 74 -1
Japan 8.6 -8.8 -0.2 8.0 -20.0 -12.0 -7 … …
Indonesia 13.7 0.2 13.9 12.7 0.2 12.8 -8 -38 -8
Vietnam 6.4 20.5 26.9 5.5 13.3 18.8 -14 -35 -30
Middle East 71.7 4.4 76.0 68.2 4.4 72.6 -5 1 -4
Saudi Arabia 24.6 1.9 26.5 22.4 1.9 24.3 -9 0 -8
Egypt 16.0 0.2 16.2 17.4 0.2 17.7 9 5 9
UAE 21.0 1.6 22.6 19.3 1.7 21.0 -8 8 -7
Other Gulf 10.1 0.7 10.8 9.1 0.7 9.7 -10 -9 -10
Turkey 32.0 8.3 40.3 38.0 4.6 42.6 19 -44 6
Russia2 20.0 … 20.0 24.9 … 24.9 25 … 25
USA 126.4 3.7 130.1 104.6 6.1 110.7 -17 65 -15
Italy2 31.8 … 31.8 28.6 … 28.6 -10 … -10
UK2 27.4 … 27.4 24.7 … 24.7 -10 … -10
Europe3 … -3.4 -3.4 … 0.9 0.9 … … …
Total above 576.7 96.0 672.7 453.6 49.3 502.8 -21 -49 -25
Other & stk ch 131.9 14.1 146.0 132.1 17.7 149.8 0 26 3
World Total 708.6 110.0 818.6 585.7 67.0 652.7 -17 -39 -20
Source: GFMS Ltd. 1. Provisional. 2. Jewellery only. 3 Net retail investment only. Europe excludes Germany.
1
Consumer demand is gold bought by individuals – i.e. as jewellery and net retail investment. Unless otherwise specified all data in this section refer to
tonnage figures and growth rates are comparisons with the same period of the previous year.

FEBRUARY 2008 12
 Gold Demand Trends
India
In tonnage terms consumer demand for gold in India during 2007
was 7% higher than in 2006. The combination of a robust econo-
my and buoyant stock market helped to fuel purchases of the
metal during the first 8-9 months of the year, despite the gold
price exceeding the psychologically significant level of
Rs9,000/10g in September. In the fourth quarter, however,
demand decelerated sharply as the gold price underwent a
period of considerable volatility and reached record highs of over
Rs10,000/10g. Consumers in India pay more attention to the
stability of the gold price than the outright price and may delay
purchases until the price has settled down, even if it stabilises at
a higher level.

Source: GFMS Ltd, WGC

brands were able to report decent growth in jewellery demand for

the quarter.

For 2007 as a whole, demand for gold among Indian consumers

amounted to 773.6 tonnes, of which jewellery demand accounted
for 558.2 tonnes, a rise of 6% on 2006 levels. Net retail investment
for the year rose by 10% to 215.4 tonnes. Investment purchases
of gold appear to have been more resilient to the price changes
during the last quarter, with the festival of Diwali encouraging
robust demand for coins and bars, some of which may be
Source: Global Insight, WGC deferred jewellery purchases. Investment demand continues to
be encouraged by the rising price of gold, which generated
Total consumer demand amounted to 83.9 tonnes in the fourth returns of around 16% in Rupee terms during 2007. Indeed, 2007
quarter, a drop of 64% compared with the fourth quarter in 2006 annual investment demand in India was the highest on record
when demand rocketed to 230.1 tonnes on the back of a drop in having more than doubled since 2004.
the gold price. Perhaps a more sensible comparison to make,
therefore, would be with Q4 2005, when demand was 99.3 tonnes In value terms, Indian gold demand extended the positive trend
as the gold price experienced a similar period of instability. that has been in place since 2003, rising by 12.4% year-on-year
Jewellery demand for the fourth quarter was 54.0 tonnes (Q4 to a record Rs 714billion (see chart 11). It is also worth noting that
2006: 165.4 tonnes, Q4 2005: 68.8 tonnes) while net retail invest- total annual demand in 2007 in tonnage terms almost matched
ment measured 29.9 tonnes (Q4 2006: 64.7 tonnes, Q4 2005: the 1998 peak of 774.4 tonnes, despite an average annual price
30.5 tonnes). Imports during the fourth quarter were comparable of Rs9225/10g compared with the significantly lower 1998 aver-
with the same period in 2005, reflecting the similarity in price age of under Rs4,000/10g. In marked contrast to this, Q4 demand
volatility during that period. Within the jewellery sector, branded was the lowest fourth quarter in tonnage terms since the early
jewellery retailers were better able than the mid-level and smaller 1990s, a point that serves to emphasise the importance of gold
players to weather the price storm and some of the higher-end price stability to the Indian consumer.

FEBRUARY 2008 13
 Gold Demand Trends
Given that gold price volatility has escalated during the opening jewellery purchases ahead of the New Year and Chinese New Year
weeks of 2008, the outlook is for consumer demand, and jew- celebration and the factors driving purchases of bars and coins also
ellery demand in particular, to remain subdued during the first spilled over to the jewellery market. Consequently, jewellery
quarter of the coming year. However sentiment among con- demand amounted to 77.3 tonnes in the final quarter of the year (Q4
sumers remains strong, particularly given rising income levels, 2006: 65.5 tonnes). 18-carat K-gold continued to account for around
and solid buying is likely to emerge on any short term corrections 18% of the total jewellery market during 2007 and while Q4 demand
in the gold price. declined slightly in volume terms, the higher retail price for K-gold
resulted in an increase in value terms over Q4 2006.
Greater China
Total consumer demand for gold in Greater China reached 363.3 As China’s economy continued to register exceptional growth and
tonnes in 2007, 23% above 2006 levels. Fourth quarter demand income levels rose accordingly, consumers in mainland China were
amounted to 94.3 tonnes, a year-on-year increase of 18%. Strong not deterred by the rise in the price of gold throughout 2007. In fact
growth was seen across the board in the investment sector during higher gold prices helped to stimulate investment purchases of the
the year, while higher jewellery purchases in Hong Kong and the metal, especially in light of the riskier stock market environment, as
mainland more than offset a small decline in Taiwanese demand for consumers were attracted by the strong returns generated by the
jewellery. metal. Furthermore, China’s high inflation level (4.8% for 2007) served
to highlight the appeal of gold as an inflation hedge, while an
Exceptional growth in gold demand in Mainland China during 2007 increased range of investment products on offer from banks and bul-
resulted in the market overtaking the USA to become the second lion houses aroused added interest. The net result was that invest-
largest retail market for gold jewellery in volume terms behind India. ment demand for gold at the retail level amounted to 23.9 tonnes for
Demand for jewellery reached 302.2 tonnes for the full year, exceed- the year as a whole - a rise of 60% compared with the 2006 level of
ing 300 tonnes for the first time since 1997 – a time when high 14.9 tonnes. For the fourth quarter, investment demand increased by
inflation and economic uncertainty prompted large scale buying of 50% (7.5 tonnes compared with 5.0 tonnes in Q4 2006).
24-carat jewellery as a store of wealth. Jewellery demand for the
fourth quarter was buoyant despite a marked slowdown around the Looking ahead, the prospects for gold demand in the mainland dur-
November National Day holiday, which is typically a seasonal low ing 2008 are mixed. Jewellery demand is likely to come under some
for the jewellery market. However, December saw a revival in pressure as a result of the rising price, particularly as retail prices in
Q4 may not have fully reflected the increase that occurred. However,
this is likely to be offset by the impact of the Chinese New Year,
which is traditionally an auspicious time for gold purchases.
Investment demand, meanwhile, should be spurred on by contin-
ued nervousness in global stock markets. The recent launch of
China’s first gold futures contracts on the Shanghai Futures
Exchange (SFE) holds further positive implications for investor
interest in the coming year.

Continued economic prosperity in Hong Kong buoyed consumer

sentiment and consequently purchases of gold jewellery experi-
enced a modest rise in the fourth quarter, record gold prices
notwithstanding. Gold jewellery purchases were encouraged by the
auspicious wedding season and forthcoming Chinese New Year,
although the ‘Year of the Rat’ is likely to generate less interest than
2007, which was widely considered to be a very auspicious’ Year of
the Golden Pig’. For the year as a whole, jewellery offtake reached
14.4 tonnes versus 13.1 tonnes in 2006 while Q4 demand rose 4%
to 3.8 tonnes from 3.7 tonnes a year earlier. The expectation is for
demand to remain strong as we head into 2008, thanks to the
upbeat domestic economic scenario and positive impetus from the
Source: GFMS Ltd, WGC mainland.

FEBRUARY 2008 14
 Gold Demand Trends
Demand for gold jewellery in Taiwan remained sluggish in Q4 2007, tend to be younger professionals, either seeking to diversify from
despite a relatively benign domestic economic backdrop and the fact equity investments or momentum buyers. The sellers are the more
that the fourth quarter is traditionally a time of peak consumption for traditional older investors who have been long-term holders.
wedding jewellery. Consumers were discouraged by the high and
rising gold price and statistics show a considerable drop in the num- With the gold price remaining high, profit taking seems likely to
ber of newly wed couples during the quarter. As a consequence, remain the dominant feature of Japanese investment in early 2008.
jewellery offtake declined by 21% to 3.4 tonnes (vs. 4.3 in 2006). The
retail investment market for gold had a more uplifting quarter At 32.2 tonnes, Japanese jewellery buying in 2007 was just 2%
however, as the rising price of gold continued to increase the appeal below 2006 levels; in Q4 offtake amounted to 8.0 tonnes, 7% down
of the ‘Gold Passbook’ and gold bars as an investment, particularly on year-earlier levels. Japanese consumers remained cautious, pre-
in light of instability among global stock markets. ferring to save rather than consume against a background of pen-
sion concerns and other economic worries. Yellow gold is staging a
Other East Asia slow come-back among the fashion conscious with imported
Throughout the year Japanese investors remained net sellers, dis- brands preferred for perceived better design.
posing of a net 56.3 tonnes in all, compared to net selling of 45.7
tonnes in 2006. Buying occurred, either on dips in the yen gold price Gold demand in Vietnam was 15% lower, at 77.7 tonnes, in 2007
or through small-scale investment via Gold Accumulation Plans, but than in 2006, but this was a fall from an exceptionally strong year
this was easily outweighed by heavy profit taking from those who (see chart 14). After generally steady growth for a number of years
had bought some years previously when the gold price was sub- investment demand soared in 2006; despite a 19% fall in 2007 it
stantially lower. At an average price in excess of ¥2,600/gm during remained, at 56.1 tonnes, much higher than in 2005 and earlier
the year, those who bought around the turn of the century when the years. Jewellery demand in 2007 was 21.6 tonnes, just 2% lower
price was around ¥1,000/gm have made substantial profits. than in 2006.

A 19% rise in local prices during the quarter restrained jewellery

consumption in Q4 to 5.5 tonnes, some 14% lower than a year ear-
lier, although this was a noticeable increase in value terms. There

Source: GFMS Ltd, WGC

This scenario continued in the fourth quarter apart from a short peri-
od in November when a strengthening of the Japanese currency
resulted in a short dip in the yen gold price. As the price rose
towards ¥3,000/gm net selling in Q4 rose to 20.0 tonnes. New buyers
Source: GFMS Ltd, WGC

FEBRUARY 2008 15
 Gold Demand Trends
was strong demand for 24-carat gold bridal sets in November and
December. Expectations of a price increase resulted in a rush to buy
gold bars in November and December; while net retail investment,
at 13.3 tonnes, was 35% lower for the quarter than the exceptional
offtake in Q4 2006, the price rise meant that the net value purchased
was almost the same. The high price appears to have increased
profit taking providing plentiful supplied of recycled gold on the
local market.

Although the gold price reached new records on the local market in
the early days of 2008, expectations of further increases are helping
to keep both jewellery and investment demand buoyant in the first
weeks of 2008.

Demand in Indonesia in 2007 was 4% higher than in 2006 at

58.7 tonnes (jewellery up one percent at 58.3 tonnes; net retail
investment moving from -1.0 tonne to +0.5 tonne). Jewellery
offtake remained generally sluggish, showing limited growth even
when the rupiah price was generally stable in the first part of the
year, and then declining on a year-on-year basis when the price
started to rise in the latter months. In Q4 jewellery demand was
down 8% year on year at 12.7 tonnes. The trend towards lower Source: GFMS Ltd
caratage, as a reaction to the high gold price, continues.
Indonesia has always been a price sensitive market so demand is wise have sold in expectation of higher prices to come. In Saudi
likely to remain restrained in early 2008. Arabia, UAE and the other Gulf states buying of high-end jewellery
remained strong in Q4 even with the price volatility; it was middle-
and mass-market products which suffered.
Middle East and Turkey
Growth in demand in Saudi Arabia was strong for the year as a
Middle East whole with total consumer demand, at 129.4 tonnes, 15% higher
In the Middle East as a whole gold demand in 2007, at 348.4 tonnes, than in 2006 – both jewellery and net retail investment showing sim-
was 10% higher than in 2006 (jewellery up 11% at 328.1 tonnes, ilar rises. In dollar terms offake was $2.9bn, surpassing for the first
retail investment up 6% at 20.4 tonnes). The year was divided into time the previous value peak of $2.7bn in 1997. A strong economy
two parts. For the first eight months demand was buoyant with Q1- provided a positive backdrop with consumer purchasing power hav-
Q3 offtake averaging 15% above year-earlier levels. But jewellery ing recovered from the adverse impact of the 2006 stock market
markets in these regions are sensitive to price volatility (albeit not as crash. In addition to the direct impact of high oil prices, individual
sensitive as those in India). The sharp price rise in the last months incomes are also benefiting from major government spending on
of the year duly affected Q4 figures with overall demand 4% below infrastructure, health and education projects. The gold market is
year-earlier levels (jewellery down 5%, retail investment essentially also profiting from an improved product offering and growth in trade
unchanged) although this was still equivalent to a 22% rise in dollar outlets as well as rising promotional spending by the trade.
terms. Egypt was the exception to the rest of the region in the quar- However, the 23% year-on-year growth in tonnage terms seen in the
ter with demand 9% higher than a year earlier, continuing the first three quarters was ended by the sharp price rise in the last few
upward trend shown during the year. months of the year. This affected demand throughout the quarter,
including both the Ramadan and Hajj seasons, so that jewellery off-
Throughout the region the impact of the price rise was, neverthe- take was 9% below Q4 2006 levels and total consumer demand
less, tempered by a general belief that gold prices were likely to rise down 8%.
further so that buying was not as severely affected as it might have
been. One consequence of this is that scrap supplies remained rel- New annual records were set for both total consumer demand and
atively low with consumers holding onto jewellery they would other- jewellery demand in the UAE for 2007. At 107.3 tonnes and 99.8

FEBRUARY 2008 16
 Gold Demand Trends
tonnes respectively, these were 7% and 8% higher than year-earlier
levels. A booming economy supported demand although high infla-
tion, particularly in property rents, restrained consumer purchasing
power to some extent. In Q4 the price volatility caused a 7% overall
fall in demand from year-earlier levels and an 8% decline in jew-
ellery. An additional factor was the changing dates of the annual
Dubai shopping festival which is a strong promotional occasion; last
year this started towards the end of Q4 2006 and continued into the
first quarter of 2007; this year it did not start until after the new year.
Dubai continues to be a key trading hub for the region with further
growth in imports during the year.

In the remaining Gulf states total consumer demand was 4% higher

than a year earlier in 2007; Q4 saw a year-on-year fall of 10%.

In Egypt, a strong economy, supported by a 14% rise in tourist

numbers, healthy foreign investment inflows, good remittances
from emigrant workers and a continuation of the financial liberalisa-
tion drive, provided a positive background for gold demand in 2007.
Coupled with some appreciation of the Egyptian pound against the
Source: GFMS Ltd
dollar and a very strong belief that gold prices were likely to rise, this
even enabled demand to hold up in October and November despite consistently high gold demand with the impact of the rise in the gold
the price rise; it was only in December that the high prices started price on jewellery buying tempered by rising income levels and
to cause demand to weaken. In Q4 demand was 9% higher than a sustained promotion. Meanwhile, the memory of the 2001 and
year earlier (jewellery up 9% also) and for the year as a whole earlier crises, and the recent experience of high inflation, coupled
demand was 12% above 2006 levels. with internal and external political tensions, have been sufficiently
strong to support lively demand for gold coins.
In the first quarter of 2008 jewellery demand in the region is likely to
be weak. The price has been particularly volatile and consumers’ Turkey also saw strong growth in jewellery demand in Q4; at 38.0
expectations of further price rises are muted given the extent of the tonnes, this was 19% higher than Q4 2006. The appreciation of the
increase that has already occurred. Nevertheless sentiment towards
gold remains generally positive, quality products sold by effective
retailers are becoming available to a wider range of people and
trade promotions across the region are strong. Coupled with the
strong economic situation throughout the region this should enable
some rebound in demand once the price stabilises even though this
may be at a somewhat lower level than during the last period of
price stability.

Turkey
2007 brought record demand in Turkey for both consumer demand
in total (up 11% over 2006 at 249.3 tonnes) and for net retail invest-
ment (up 2% over 2006 at 61.1 tonnes). Jewellery demand was the
second highest annual figure ever; at 188.1 tonnes, this was 14% up
on 2006 but 7 tonnes below the 2005 record).

In the past Turkish demand has varied substantially along with the
country’s economic fortunes. The improved economic performance
following the 2001 crisis has helped bring about five years of Source: WGC

FEBRUARY 2008 17
 Gold Demand Trends
lira during the year limited the rise in the gold price; the monthly
average price in December was only 6% higher than the September
average. As chart 17 shows, it is only in recent days that the price
has surpassed the peaks in mid-2006.

In addition to the favourable price movements, demand for jewellery

during the year was also boosted by a successful television cam-
paign for 22-carat bangles sold at a low premium over the gold
price; the WGC’s partner in this campaign reported selling over 4
tonnes more of these products than in 2006, leaving aside any
spillover effect on other retailers.

In contrast to jewellery, net retail investment was sharply lower in

Q4, only just over half year-earlier levels. This does however follow
three quarter of very strong offtake, and it did not prevent total off-
take for 2007 achieving its new record.

Turning to the outlook for gold demand in Turkey during 2008, it is

likely that the rising price will become the main influence on demand
as even Turkish local prices reach new record levels. Early indica-
tions show jewellery demand beginning to ease, while scrap levels
are rising in response to the price moves. Source: GFMS Ltd, WGC

USA shows only a marginal drop in US$-denominated demand com-

With the US economy slowing, and with the pressure exerted by pared with 2006 (-1%); therefore it would appear that in 2007
rising gold prices, purchases of gold jewellery declined to 262.9 consumers allocated a similar sized budget for spending on gold
tonnes in 2007, a 14% drop on 2006 levels. The fourth quarter wit- jewellery as they did the previous year.
nessed a further decline in the country’s economic fortunes as GDP
growth slowed, the dollar continued to decline in value and interest The retail investment market for gold fared better during the fourth
rates were cut in an attempt to stave off recession and ease condi- quarter. Demand for bars and coins totalled 6.1 tonnes, an increase
tions in the credit market. Consumer confidence ebbed and this was of 65% over Q4 2006. For the year as a whole, investment demand
reflected in weak retail sales data. of 15.2 tonnes was 53% down on 2006 levels, but the comparison
is somewhat distorted by strong demand generated by the launch
Against this gloomy background, the drop in fourth quarter jewellery of the Buffalo coin in 2006.
sales became more pronounced; down 17% year-on-year to 104.6
tonnes. In dollar value terms however, this represented an increase Europe
of more than 6% over Q4 2006. While the high end of the jewellery A combination of the rising price of gold and deteriorating global
market was more resilient to the downturn in Q4 sales than the mass economic conditions further diminished the appetite for gold among
market, even luxury brands experienced a lacklustre Christmas sea- Italian consumers in the fourth quarter of 2007. Annual gold
son. Initial indications suggest that imports of gold jewellery fell con- jewellery demand amounted to 58.8 tonnes in 2007, which equates
siderably in 2007 and the outlook for jewellery demand in the year to a 9% drop compared with 2006. Fourth quarter demand was 10%
ahead is pessimistic as retailers - already experiencing tough eco- lower at 28.6 tonnes. Branded and high-range gem set gold
nomic conditions - find it difficult to keep pace with the gold price. jewellery did not suffer unduly; therefore it was once again the
generic gold market that bore the brunt of a decline in sales as retail
Looking at US jewellery demand in value terms, the chart illustrates spending in general declined against a backdrop of waning
how jewellery sales have increased sharply in value, while declining consumer confidence.
in tonnage, since 2001, peaking at almost US$6billion in 2006.
Jewellery demand in 2007 was over 72% higher in value terms than Evidence suggests that, while record gold prices have had a deter-
in 2001, compared with a 32% drop in demand in tonnes. The data rent effect on consumption, volatility in the price has led consumers

FEBRUARY 2008 18
 Gold Demand Trends
to be more cautious in their purchases. Consequently, companies A surge in the demand for gold jewellery in Russia during the final
that use the most advanced technology in their manufacturing quarter took annual demand to 77.0 tonnes in 2007, an increase of
process have increased their share of traditional markets, for exam- 11% over 2006. Russia was one of the few markets where jewellery
ple in machine-made chains. purchases increased in the final quarter and the 25% increase was
the fastest rate of growth in any country. Demand hit a new quarter-
In the UK, demand for gold jewellery registered its sixth successive ly record of 24.9 tonnes as consumer incomes continue to rise and
annual decline, falling 8% to 48.6 tonnes. Quarterly data show imports continue to accelerate accordingly. Jewellery sales are
demand dropping 10% year-on-year to 24.7 tonnes. Hallmarking expected to stay strong in 2008, although the pace of growth in
data confirms this trend, with the number of items being hallmarked demand should decelerate as recent spectacular growth rates are
declining by around 5% during both the year and the fourth quarter. unlikely to be sustained, particularly in light of soaring gold prices.
It is worth noting however, that during 2007 the number of 22-carat
items being hallmarked increased (+12.2%) at the expense of Net retail investment in Europe as a whole remained negative in
lower-quality 9-carat items (-6.1%). 18-carat items being hallmarked 2007 as dishoarding in France continued to outweigh investment
also decreased in number (-1.3% in 2007), although the weight of purchases elsewhere. At 5.9 tonnes however, outflows across the
those items rose by 9.6%. The outlook for the UK is similar to that region were considerably lower than 2006, when disinvestment
for many other countries as we head into 2008, with demand for reached 12.3 tonnes. At just under one tonne, fourth quarter net
gold jewellery likely to decline further given the pressures being retail investment was positive for the first time since Q4 2003 as buy-
exerted by record high gold prices and an uncertain economic ing in Switzerland more than doubled to 4.5 tonnes and there was
environment. a slowdown in net selling in France.

FEBRUARY 2008 19
 Gold Demand Trends
HISTORICAL DATA
Table 7: Historical data for identifiable gold demand1

Tonnes $bn
Net retail ETFs & Industrial & Net retail ETFs & Industrial &
Jewellery invest. similar dental Total Jewellery invest. similar dental Total

1999 3,139 359 - 412 3,911 28.12 3.22 - 3.69 35.03

2000 3,204 166 - 451 3,821 28.75 1.49 - 4.05 34.29
2001 3,008 357 - 363 3,727 26.21 3.11 - 3.16 32.48
2002 2,660 340 3 357 3,360 26.48 3.38 0.03 3.56 33.45
2003 2,482 292 39 381 3,194 28.99 3.41 0.46 4.45 37.31
2004 2,614 338 133 412 3,497 34.54 4.46 1.83 5.41 46.24
2005 2,707 385 208 431 3,731 38.67 5.45 3.03 6.15 53.30
2006 2,283 399 260 458 3,400 44.48 7.77 4.94 8.90 66.08
20072 2,426 405 251 465 3,547 54.20 8.93 5.72 10.40 79.25

Q1’04 569 81 16 101 768 7.47 1.07 0.22 1.33 10.09

Q2’04 632 85 5 109 831 7.99 1.07 0.06 1.38 10.51
Q3’04 602 76 -2 102 778 7.77 0.99 -0.03 1.31 10.04
Q4’04 811 95 113 100 1,119 11.31 1.33 1.58 1.40 15.61

Q1’05 681 120 89 106 996 9.36 1.65 1.22 1.46 13.68
Q2’05 740 110 -2 111 959 10.16 1.51 -0.02 1.52 13.17
Q3’05 614 86 38 108 845 8.68 1.21 0.53 1.52 11.95
Q4’05 672 69 84 106 931 10.46 1.08 1.30 1.65 14.50

Q1’06 490 89 113 112 804 8.73 1.58 2.01 1.99 14.32
Q2’06 527 93 49 115 784 10.63 1.88 0.99 2.32 15.81
Q3’06 557 107 19 115 799 11.14 2.14 0.38 2.30 15.97
Q4’06 709 110 79 116 1,013 13.97 2.17 1.56 2.28 19.98

Q1’07 565 108 36 116 826 11.81 2.26 0.76 2.42 17.25
Q2’07 671 127 -3 119 914 14.39 2.73 -0.07 2.55 19.61
Q3’07 604 103 139 118 964 13.20 2.25 3.05 2.57 21.07
Q4’072 586 67 78 113 843 14.80 1.69 1.96 2.85 21.31

Source: Tonnage data are GFMS; Value data are WGC calculations based on GFMS data.
1. See footnotes to Table 1 for definitions and notes. 2. Provisional

FEBRUARY 2008 20
 Gold Demand Trends
Notes and definitions
All statistics (except where specified) are in Retail investment. For the three bar, coin Industrial demand. The first transformation of
weights of fine gold. and medallions categories this comprises raw gold into intermediate or final products des-
individuals’ purchases of coins and bars tined for industrial use such as gold potassium
Tonne = 1,000 kg or 32,151 troy oz
defined according to the standard adopted by cyanide, gold bonding wire, sputtering targets.
of fine gold.
the European Union for investment gold. This includes gold destined for plating jewellery.
Na = not available
Medallions of at least 99% purity, wires and lumps Dental. The first transformation of raw gold into
… = not applicable
sold in small quantities are also included. In prac- intermediate or final products destined for dental
Mine production. Formal and informal output. tice this includes the initial sale of many coins applications such as dental alloys.
Net producer hedging. The change in the destined ultimately to be considered as numis- Tourist purchases and “luggage trade”.
physical market impact of mining companies’ matic rather than bullion. It excludes second hand Purchases by foreign visitors which are normally
gold loans, forwards and options positions. coins and is measured as net purchases. for their own use or for gifts are included in
Official sector sales. Gross sales less gross “Other” retail investment refers to Western demand in the country of purchase. Bulk pur-
purchases by central banks and other official Europe and North America. It includes net chases by foreign visitors (“luggage trade”) which
institutions. Swaps and the effect of delta hedging investment in physical bullion as defined by the appear to be intended for resale in the visitors’
are excluded. EU (other than new coins which are included in country of origin or a third country are attributed
Old gold scrap. Gold sourced from old fabri- the two coin categories), individuals’ paper trans- to the country in which they are resold.
cated products which has been recovered and actions with a direct physical counterpart plus Revisions to data. All data may be subject to
refined back into bars. Over The Counter activity and changes in metal revision in the light of new information.
Jewellery. All newly-made carat jewellery and account holdings where measurable and retail
gold watches, whether plain gold or combined targeted. Historical data
with other materials. It excludes second-hand Consumer demand. The sum of jewellery Data covering a longer time period will be available
jewellery, other metals plated with gold, coins and and retail investment purchases for a country – on Bloomberg from February 18; alternatively
bars used as jewellery and purchases funded by ie the amount of gold acquired directly by contact GFMS Ltd (+44 (0)20 7478 1777;
the trading in of existing jewellery. individuals. gold@gfms.co.uk).

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FEBRUARY 2008 21