Jewelry demand unfazed by surging gold prices
Sat May 6, 2006 4:54 AM IST

By Pav Jordan

LIMA, Peru (Reuters) - Soaring bullion prices are unlikely to end rising demand for gold as the jewelry industry in India, newly found investor interest and medicinal uses all continue to defy expansion forecasts, a top gold official said on Friday.

Global gold demand likely fell in the first three months of this year, but should rise in the second quarter as consumers adjust to soaring gold prices and place their faith in the enduring value of the precious metal again, George Milling-Stanley of the World Gold Council told Reuters in an interview on the sidelines of a gold symposium in Lima, Peru.

Gold prices are rocketing as investors look to bullion as a safe-haven against instability in the Middle East, a weak U.S. dollar, concerns over Iran's nuclear ambitions, high oil prices and global inflation.

But that has not choked off demand, which rose 5 percent to 4,036 tonnes in 2005, according to independent precious metals consultancy GFMS.

"When we look at first-quarter statistics we will see that demand has fallen, probably considerably, especially in ... the price sensitive markets, India, parts of the Middle East and parts of Southeast Asia," Milling-Stanley said.

"In the second quarter of the year, there are just a few signs that it may be that consumers are beginning to adjust to the new, higher price level."

Gold prices are seen continuing to rise over the coming months as demand strengthens again, led by jewelry demand from No. 1 consumer India and as investment fund interest booms.

The World Gold Council said earlier this week it saw prices for gold, also used in industry, challenging the $850/ounce level within the next 18 months. Others are setting their sights to well over $1,000 per ounce.

And contrary to popular logic, gold pundits say higher prices rarely hold off buyers for very long, with most even holding higher-priced purchases in higher regard.

"The private sector is making the decision to move into gold," said Milling-Stanley.

GOLD AT THE NANO LEVEL

He added that gold has unique characteristics when broken down to the nano level which allow it be used to do everything from combat diseases to make it easier to make flat-screens on items like mobile phones more readable.

Gold production in 2005 was about 2,519 tonnes, outstripped by demand by the jewelry sector alone by some 2,712 tonnes.

Jewelry sales rose 3.8 percent in 2005 compared to the year-earlier period.

In India, whose jewelry demand powers much of gold purchases, gold consumption soared above 600 tonnes in 2005, compared to about 250 tonnes in 1990.

"Definitely, demand will continue to grow," said Paul Walker, the chief executive of GFMS.

The pace of demand will be determined by how much further prices rise and at what rate.

"There's no way to put a time on it, because we've never seen a market quite like this," said Milling-Stanley.