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Gold sales increase by 20% in Q2, WGC

Aug '08
The World Gold Council's regional office in Dubai announced that the UAE gold sales increased from AED 3 billion in the second quarter of 2007 to AED 3.6 billion contributing to a 20% increase. The same positive sales value increase was recorded in KSA as gold sales increased by 14% and 2% in other Gulf countries. Additionally, Egypt witnessed an astounding sales increase of 48%.

The high and volatile gold price continued to dampen demand in tonnage terms during Q2, particularly for jewellery. While the average gold price, at $896.29/oz, was well below the peak of $1,011/oz seen in mid March, it nevertheless represented a 34% rise on the average price of Q2 2007. Total identifiable demand fell 11% in UAE, 15% in KSA and 24% in other Gulf countries.

Similar to the case in Q1, there was a notable exception in Egypt, where gold demand increased 10% in Q2 of 2008. The rise in the gold price provoked a surge of both jewellery and investment buying in Egypt due to the widespread belief that the price was going to rise further.

The surge in gold price affected markets worldwide. India was the biggest contributor to the fall in gold demand during Q2, as it was in the first quarter. Both jewellery and investment demand were severely affected by the high and volatile gold price and higher local inflation, which has squeezed disposable incomes. Jewellery demand in Q2 was down 47% in tonnage terms on the levels of a year earlier, while net retail investment fell 41%. Indian demand also fell in US$ value terms, by 29% in jewellery and 20% in investment.

Other major gold consuming nations experienced a more mixed quarter. On the jewellery side, only China and Egypt experienced a rise relative to a year earlier levels in tonnage terms. Countries and regions that suffered the largest decline in percentage terms (apart from India) included the US (-30%), Taiwan (-20%) and the UK (-20%) and the other Gulf countries (-24%). Nevertheless, the fact that the dollar spends on jewellery in most countries remains above last year's levels is encouraging given the current economic environment.

Jewellery demand in the Middle East, which accounts for more than 90% of total offtake in the region, was 12% lower in tonnage terms in the second quarter of 2008 relative to the previous year. However, the decline in annual terms was exaggerated by a strong result for the June quarter 2007. Furthermore, demand in the most recent quarter remains well above the levels of a year ago in value terms.

Like many other parts of the world, inflation is squeezing disposable incomes. Inflation in Saudi Arabia recently hit double digits for the first time since the 1970s. Nevertheless, the region is in a much stronger position going forward than most other parts of the world. The pain of higher petrol prices on consumers is significantly lower and high oil prices have a stimulatory rather than contractionary effect on economic activity.

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