Eventhough India is the largest consumer of gold jewellery in tonnage term; the demand for gold jewellery in Q1of calendar year 2008 remained low mainly on account of high price and price volatility. According to the World Gold Council?s (WGC) Q1 report released on Thursday, any long term decline is likely to be modest.
Generally, jewellery demand is driven by a combination of affordability and desirability by consumers, and tends to rise during periods of price stability or gradually rising prices, and declines in periods of price volatility. A steadily rising price reinforces the inherent value of gold jewellery, which is an intrinsic part of its desirability. The Council recalled that the 40% rise recorded in the first three quarters of the year turned into a 67% fall in the fourth quarter of 2007.
As far as purchases of gold across the world in Q1, the report said the continued fallout from the credit crisis and depreciation of the dollar led to increased purchases of gold as a safe-haven asset and dollar hedge during the first quarter, pushing the price to an all-time high of $1011/0z on March 17. Increased volatility continued to be a common theme across the financial markets as news of sub-prime related write downs, aggressive interest rate cuts and weak economic data hit home.
?Another break above $1,000 is a real possibility but even if gold does not reach four figures again in 2008, we still expect to see a fall of in excess of 200 tonne in global jewellery demand this year,? said Philip Klapwijk, GFMS? executive chairman who delivered the findings of the gold survey in London.
Increased investor interest seems to have been the main driving force behind the price increase again. Investors bought another 72 tonnes of gold via exchange traded funds (ETFs) in the first quarter, taking total holdings in the ETFs to 943 tonnes ($28 billion) at the end of March.