Exceptionally strong gold demand in Q1

Wednesday, June 01, 2005

The World Gold Council on Wednesday reported (pdf) that gold end-user demand has risen 26 percent in tonnage terms year-on-year in the first quarter of 2005. The first quarter of 2005 saw exceptionally strong demand for gold, particularly from the jewellery sector, from bar and coin purchases and from investment in gold backed exchange traded funds (ETFs), it said. The supply of gold was 23 percent higher year-on-year, driven by an increase in central bank sales and a reduction in de-hedging by gold mining companies and added, "by April 1, 2005, the signatories to the CBGA (Central Bank's Goldsales Agreement) had disposed of a combined 346 tons out of the 500 tons maximum. In particular, the first quarter of 2005 saw the final tranche of selling from Switzerland, which have now completed their 1,300 ton sales programme."

As these sales, which helped drive the gold price to a 2005 low of 412 dollars in February, are mostly concluded and gold producers continue their de-hedging, gold could resume it's 5-year uptrend. The ECB earlier this year expressly announced it would abstain from further sales, but acted otherwise by dumping gold with a value of 528 million Euros soon after that close to the 2005 high. Follow this link for the story. Analysts had earlier this year predicted that the metal could rise to 500 dollars an ounce. For this to happen, gold has to further reduce its high negative correlation to the US dollar. Until now the two are moving more or less in tandem. Gold lease rates have stayed flat in the last 12 months. A surge in silver lease rates over the last month was a precursor to the present silver rally, see this post.

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