FACTS ‘N’ FIGURES — Gold struggles in SE Asia

The recent currency and economic crisis in Asia has had a significant impact on gold demand there.

Demand for the yellow metal in the third quarter of 1997 barely reached 50 tonnes, less than half its normal level. Owing to the strength of gold demand in the early part of the year, demand in the region in the first nine months was 313.1 tonnes, 7% below the record level in 1996.

The third quarter is traditionally an inauspicious period for the markets, when gold demand is dominated by Chinese consumers, partly because of the Hungry Ghost Festival celebrated by several countries in the region. This is a period in which business and financial arrangements, as well as significant purchases, tend to be avoided.

The combination of this and the currency crisis meant that both jewelry and investment demands were lower. Gold demand for jewelry during the quarter was 40.7 tonnes, down 54% from the similar period in 1996. Investment demand, at 9.2 tonnes, was 44% lower. Gold demand in Thailand, Malaysia, Indonesia and Vietnam was hardest hit, whereas demand in Singapore and South Korea continued to make progress.

n Thailand — Large-scale selling by consumers, together with significant flows from such neighboring countries as Laos, meant that sales back to the market exceeded new sales by a net 15 tonnes during the third quarter. This was prompted largely by the 40% depreciation of the Thai baht against the U.S. dollar, which meant sharply higher gold prices in local currency terms.

There was some profit-taking, but the bulk of the volume reflected distress sales. That consumers converted gold back into cash highlighted, once again, the metal’s traditional role as a store of value and asset of last resort.

n Indonesia — July and the first half of August were extremely positive for gold demand here. However, the currency fell 40% against the U.S. dollar.

The consequent sharp rise in the local currency gold price prompted selling back. Demand for the third quarter fell to a net 15.5 tonnes, half the record level of a year ago.

n Malaysia — Demand here suffered rather less from the economic crisis, falling 32% to 4.7 tonnes. In an attempt to limit sales back to the market, the Malaysian Jewelry Association reduced buy-back prices, discouraging some potential sellers. The local industry also enjoyed a measure of protection because of its growing importance as a major centre for jewelry exports to China, Hong Kong, the Philippines and the Middle East. Malaysian exports became more competitive because of the depreciation in the ringgit, and reported volumes rose between 15 and 20% during the quarter.

n Vietnam — Demand here, at 7 tonnes, was down 30% from record levels one year ago. Gold supplies into the country were squeezed by the State Bank’s decision to withhold import quotas, although this restriction is expected to be lifted soon. Local currency gold prices have fallen by about 11% since the beginning of 1997, and the U.S. dollar has appreciated against the dong by 5.5% over the same period. As a result, consumers turned to dollars rather than gold as a hedge against inflation.

n Singapore — The country largely escaped the impact of the currency turmoil. Gold demand in the third quarter reached 5.2 tonnes, up 37% from the similar period in 1996. Both jewelry and investment demand were helped by the fall in the gold price. Demand for gold for jewelry rose 33%, to 4.8 tonnes, whereas investment demand doubled to 0.4 tonne.

n South Korea — Demand here was also unaffected by the region’s economic problems, and rose 7% to 32.5 tonnes. By contrast, investment demand continued to soften as investor funds remained closely controlled. Trade reports indicate that jewelry demand has benefited from economic recovery, growing interest in 18-carat jewelry and an expansion of distribution channels.

— The preceding is an excerpt from “Gold Demand Trends,” a quarterly publication of the Geneva-based World Gold Council.