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$3.5bn Saudi gold deal huge against $6.5bn consumer record

By: Peter Cooper, Arabian Money


-- Posted Thursday, 20 November 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

The revelation of the purchase of $3.5 billion worth of gold by a group of Saudi Arabian investors over the past month is a huge gold deal when you consider that total record third quarter spending on gold by consumers was $6.5 billion.

Since the story broke on this blog I have received an email from an individual claiming to have personally handled the Saudi deal and confirming its veracity. But nobody appears to have a clue where the gold came from or who actually bought it.

Public sales of gold coins and bars reached their highest levels for more than a decade in the third quarter while gold exchange traded funds saw record inflows as revealed by the World Gold Council in its latest Gold Demand Trends report.

Record demand

The WGC said consumers spent $6.5 billion in buying 232.1 tonnes of gold coins and bars in the third quarter of 2008, an increase of 121 per cent in volume terms over the same period a year ago, and the strongest growth since the mid 1990s. In the first nine months of this year, net retail investment in coins and bars reached 443.6 tonnes, 10 per cent more than all of 2007.

Germany and Switzerland saw a surge in demand for coins and bars in the third quarter with net retail investment of 19 tonnes and 21 tonnes respectively, up 533 per cent and 500 per cent compared with the same period a year ago.

Exchange Traded Funds also saw record buying interest with inflows of 150 tonnes in the third quarter, up 8 per cent over the same period last year, with investors spending more than $4.2billion accumulating holdings in ETFs. Lehman’s implosion in September led to a jump in ETF inflows, which surged by an unprecedented 100 tonnes in just five consecutive trading days.

Jewellery demand

Strong growth was also seen in the jewellery sector where demand reached 647.6 tonnes in the third quarter, up 8 per cent compared with the same period last year, and taking spending to $18.2 billion. India, the world’s largest jewellery market saw demand reach 178.5 tonnes up 29 per cent compared with the same period last year as consumers rushed to take advantage of lower prices ahead of the Diwali festival in October.

Why then have gold prices fallen in the third quarter? It certainly defies the laws of supply and demand. As commented elsewhere on this blog the problem is that the Comex paper futures market sets the spot price of gold, and as hedge funds have sold this paper the price of gold has fallen.

This has, however, just further whetted consumer appetite and for once retail investors are acting rationally and buying on falling prices. That prices could suddenly reverse upwards, and soar ahead is also obvious. It just needs the hedge funds to stop their disposals, which must surely be almost done.


-- Posted Thursday, 20 November 2008 | Digg This Article | Source: GoldSeek.com


About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link




 



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