Gold will always shine

The shiny yellow metal has always been central to the lives of people not only in Arabia but in the whole Middle East and Asia.
By Dr Mona Al Munajjed
Mon 09 Dec 2013 10:49 AM

A recent visit to the gold market at Al Batha souk in downtown old Riyadh convinced me that the female appetite for the ultimate yellow metal remains extraordinarily high.

Shops were packed with lustrous gold Bedouin jewellery, necklaces, sparkling rings, and bracelets in different designs, offering an impossible choice between the 22K and 21K jewellery and the 24K (99.99 percent purest gold) ingots.

Let’s face it: women have always loved to wear gold jewellery for its natural beauty and the glow it gives to a woman’s face and the glamour it adds to her appearance. But it isn’t just women who crave gold — from ancient times, gold has been of central importance to mankind.

Its allure lies in its uniqueness; only gold combines beauty and rarity with the properties of durability (gold does not rust, tarnish or corrode) and workability (an ounce of gold can be stretched into a wire 80km long).

Gold also has a multitude of uses in industry. For example, its excellent conductivity makes it useful in circuit boards. Considered beneficial for health for centuries, gold has many uses in medicine today.

It is even incorporated in luxury face creams. And gold has great symbolic value, not only as a symbol of status and power but also as a symbol of excellence.

The shiny yellow metal has always been central to the lives of women (and men) not only in Arabia but in the whole Middle East and Asia, in particular India and China, where it is highly treasured as a safe haven for investment and a means of asset protection and payment rather than as just a luxury.

More than 3 billion people in those areas prefer to accumulate wealth in gold jewellery or ingots rather than in bank deposits. Gold jewellery also holds traditional and cultural connotations for those regions playing an essential role in weddings, dowries and gift-giving.

For centuries gold was the basis for monetary exchange value until in the 20th century the gold standard was replaced by fiat currency (money backed by government decree only).

Current gold prices continue to fluctuate as a result of global inflation, interest rates and currencies, consumer spending, market risks, short-term investment flows and supply-related drivers.

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The US monetary stimulus pushed gold to a record $1,920.30 per troy ounce in September 2011, but the price has been falling since and the Economist Intelligence Unit (EIU) predicts a fall to an average of $1,483 for 2013, and a further decline to $1,403 in 2014.

EIU estimate that by mid-2015, the gold price will be under $1,350. As most economies are recovering, many investors now prefer to invest in riskier assets like stocks.

Other projections, however, suggest that gold will increase in price because of factors such as the possibility of a gold mining crisis, the Chinese government’s persistence in amassing gold over the last few years, India’s excessive demand for gold to manufacture jewellery and the demand for gold as a store of value against inflation especially as the Federal Reserve, the Bank of Japan and the European Central Bank continue buying more debt and printing more money.

Demand is still high for the precious metal in emerging markets. The EIU’s data explains that while global gold consumption declined in 2013 by 8.9 percent to 3,487 tonnes, it foresees a rebound in demand to 3,965 tonnes in 2014.

The latest dive in gold prices of around 10 percent on 15 April has stimulated greater gold jewellery consumption. The EIU’s data indicates an increase of global gold jewellery consumption from 1,895 tonnes in 2012 to 2,108 tonnes in 2013 and it is projected to reach 2,183 tonnes in 2014.

India and China lead the market as the biggest consumers of gold, clinging to it as the safest long-term investment. They also account for almost 60 percent of demand for gold jewellery in 2013.

India is expected to show demand of 651 tonnes in 2013 and a growth in gold jewellery consumption of 15 percent, with consumption of gold reaching almost 700 tonnes in 2014.

However, a slowing to 7 percent growth is expected in 2014 as result of the Indian government suppressing gold imports and imposing a tax of 10 percent import duty as a way to stop the rupee falling against the dollar.

As for China, its gold consumption was 609 tonnes during 2013 and will reach 646 tonnes in 2014.

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According to the World Gold Council (WGC), the Middle East recorded an increase in total consumer demand from 49 tonnes during the second quarter of 2012 to 67.4 tonnes in the same period of 2013, worth $3.065bn.

The demand for gold jewellery increased from 42 tonnes during the same periods to 55.7 tonnes, worth $2.535bn.

Turkey is one of the biggest gold consumers in the Middle East, with demand increasing from 70 tonnes in 2012 to 73 tonnes in 2013 and due to reach 75 tonnes in 2014, according to the EIU.

Saudi Arabia also has one of largest gold markets: 43 tonnes in 2012, 48 tonnes in 2013 and an anticipated 50 tonnes in 2014. The demand for gold jewellery also increased from 15.3 tonnes in the second quarter of last year to 18.8 tonnes in the same period this year, valued at $855m.

The United Arab Emirates is another important market in the Middle East where gold consumption rose from 42 tonnes in 2012, to 45 tonnes in 2013 and will be hitting 47 tonnes in 2014, the EIU projects.

 Gold jewellery consumption increased from 14.2 tonnes in the second quarter of last year to 18.8 tonnes in the second quarter of 2013, with a value of $855m.

The Kaloti Jewellery Group, one of the largest gold and precious metals refiners and trading houses, will complete a new refinery in Dubai by late 2014 that will have the capacity to produce 1,400 tonnes of gold and 600 tonnes of silver.

In Europe, gold consumption has greatly decreased because of austerity measures adopted in reply to the debt and currency crisis as Europeans experience high unemployment, an increasing poverty gap and social unrest.

Demand, which is mainly for bars and coins rather than jewellery, is now much lower than in Asia and the Middle East.

Although private consumers in Asia and the Middle East have a huge appetite for gold, their central banks hold only small quantities in relation to their total currency reserves as most currencies are pegged to the dollar and they prefer to diversify their reserve holdings.

While the highest government gold holdings are in the US (8,133.5 tonnes — 70 percent of reserves), Germany (3,390.6 tonnes — 66 percent), Italy (2,451.8 tonnes — 65 percent) and France (2,435.4 tonnes — 65 percent), China with 1,054.1 tonnes has only 1 percent in gold reserve, and India with 557.7 tonnes has only 7 percent.

In the Middle East, Turkey with 441.5 tonnes has 14 percent; Saudi Arabia (322.9 tonnes — 2 percent); Lebanon (286.8 tonnes — 22 percent);Kuwait (79.0 tonnes — 9 percent); Qatar (12.4 tonnes — 1.4 percent); and Bahrain (4.7 tonnes — 3.7 percent).

Increasing demand for gold jewellery in Asian countries should continue as a result of their positive economic development, but perhaps women who love gold everywhere should welcome recent news that Australian scientists have discovered that gold particles found in eucalyptus leaves could help miners identify where deeply buried deposits might be, saving time, money and resources hunting for this precious yellow metal.

*Dr Mona Al Munajjed is an author and advisor on socio-economic issues. (mona.almunajjed@gmail.com)

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