July 26, 2005

Never Mind the Price, Gold Still Dazzles Asia

SINGAPORE/BOMBAY -- Villagers in Indonesia may wear one or two gold teeth to boost social status. In India, parents will not marry off their daughters without giving them some gold jewelry for financial security.

Ancient texts talk about Indian merchants venturing on dangerous voyages to distant lands in search of gold. In China, gold inlay was applied to bronze objects by at least 1200 B.C.

Gold -- the Glowing Dawn -- has fascinated Asia for centuries and its demand is likely to only increase in the years ahead, led by China which seems set to become the last gold-crazed nation in the region.

In Asia, the yellow metal is not only an item of adornment but also an investment -- something that, for instance, holders in quake-prone Japan can sell back for cash in times of trouble.

"In a longer term, you ask people whether they have confidence in the U.S. dollar? Not really, right?" asked Albert Cheng, Far East managing director of the World Gold Council.

"Gold is a good financial vehicle where you can put your money in," he told Reuters in Singapore.

Several Asian countries have seen an increase in demand for gold for jewelry and investment in recent years, reflecting economic growth and the metal's growing popularity.

The world's biggest buyer, India, is estimated to consume 600 tonnes of gold this year, up from around 590 tonnes in 2004. India's gold demand surged 17 percent in 2004 from a year earlier.

China, another main buyer whose consumption may eventually match India's, is likely to see demand rising by 10 percent this year as the country liberalises its bullion market.

Dealers and analysts say investors have diversified into hard assets such as gold because of the wide U.S. trade deficit and China's revaluation of the yuan -- a move which will lead to stronger Asian currencies and a weaker dollar. A weaker dollar means a more affordable price of gold, which is quoted in U.S. dollars and currently stands at around $425 an ounce.


"In a country like India, we don't have enough safe investment alternatives. People also have money in banks, but they want to create a portfolio and gold is an important part of the basket," said Ranjeeth Rathore, a dealer in Madras.

"I have seen that when prices are low, people don't listen to any investment advice. They say they want gold. That's it."

Indeed, gold prices have been volatile in recent months, touching a 3-month high of $443.60 in June, just a few dollars away from this year's peak at $446.70, before profit-taking and a firming U.S. currency erased some of the gains.

Gold hit a 16-1/2-year high of $456.75 in December.

But choppy prices fail to dampen the demand in India, where jewelry forms an important part of Hindu marriages, with parents giving their daughter gold for financial security.

Hindus treat gold as an auspicious metal and like to buy and give it as a gift during religious festivals.

"The first choice of Indians is gold. It's a sensible investment. They want to invest in something which is tangible," said Rajesh Mehta, chairman of Rajesh Exports Ltd, India's largest jewelry exporting firm.

"It is the best saving investment available anywhere in the world. Gold is the only commodity in which you can invest and can also use," he said.

The situation is be bit different in Indonesia, where consumption could fall this year because of a firm gold price and record-high oil, which cause prices of basic essentials to rise. Indonesia, Southeast Asia's largest gold buyer, consumed 88.9 tonnes of gold in 2004, up from 82.7 tonnes in 2003.

"Consumption may be below 80 tonnes. The gold price stays high at above $400 while buying power is depressed," said Leo Hadi Loe, an independent analyst in Jakarta.

But Indonesia may be a one-off case. Neighboring Vietnam saw consumption picking up 10 percent last year to 65 tonnes as locals sought hard assets for protection against volatile dong currency. Demand is likely to stay firm this year, say dealers.

Analysts are also upbeat on Asia.

"Strength in both China's economy and currency and heightened investor interest should support Asian gold demand over the next year. And with rivers of energy dollars flowing into the Middle East, demand there shouldn't be too shabby either," Commonwealth Bank of Australia said in a report.