Williams warns on gold offtake slump --------------------------------------------------------------------------------
AngloGold’s gold-market guru, Kelvin Williams, who is also arguably one of the world’s leading authorities on the subject, has warned that all gold producers should be concerned about current declines in physical offtake.
Speaking at the company’s June quarter results presentation yesterday, Williams said that, while there was significant speculative interest in the precious metal, especially in light of widespread financial, economic and political uncertainty, the physical market continued to react negatively to the higher dollar prices.
He was particularly concerned about the fall in consumption in the developed world, pointing out that Italian offtake for the first quarter of 2003 had declined 27% year-on-year. He added that there were also indications that consumer offtake for gold jewellery in the US was weak.
This developed-world trend was exaggerated in the developing markets, particularly in the world’s leading market of India, where, Williams said, imports had more or less ceased during May.
He suggested that offtake was unlikely to resume until the post-monsoon seasonal buying in August.
However, Williams was quick to point out that India had always been a price-sensitive market and that lower consumption was expected given the need for that market to adjust buying thresholds to the new price ranges.
This said, Williams remained positive that there were a number of factors that would continue to support higher dollar-gold prices.
A key factor would be movements in the US dollar, with the precious metal being a major beneficiary of the weaker dollar.
“Expectations of the gold price for the next 12 to 24 months are tied closely to the fate of the US dollar and, more broadly, of the US economy.
“As the dollar weakens, so the gold price is expected to rise.”
Other factors will be continued producer dehedging and speculator sentiments. The former has provided an important counter-weight to the fall in offtake.
A 430 t reduction in net gold producer hedges during 2002 had been followed by a further 143 t in the first quarter of 2003.
While AngloGold, itself, would continue to be a gold hedger, it too was committed to reducing the size of it position.
During the second quarter of 2003, its hedge had fallen another 610 000 oz to 8,73-million ounces and the board, earlier this week, also revised the current hedging upper limit down from 50% to 30%of five years of gold production.
Meanwhile, speculator interest, in Williams’s view, remained a positive feature, with Comex trade patterns showing continued buying.
“It will be important for gold that Comex continues to support the price by sustained buying as the economic indicators continue to favour gold.” Williams said.
However, he warned that, despite all these positives, it would be crucial, in the medium- to longer-term, for producers to begin paying serious attention to the issue of offtake, which was emerging as a serious blot on gold’s copybook.
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AGG Price at posting:
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