Glittering year for the bullion

REVIEW 2005

It was a glittering year for the domestic bullion market. While standard gold (99.50 purity) prices went up by 19.20 per cent, gold pure (99.90 purity) increased by 19.09 per cent and silver (.999) by 18.48 per cent.

Gold prices shot up to an all-time high of Rs 8,100 on December 12, gaining 36 per cent from the year low of Rs 5,950 on February 8. Silver too followed suit, with a new peak of Rs 13,365 on the same day, up 31.5 per cent from its year low of 10,165 on January 4.

Both gold and silver, however, reacted sharply after reaching all-time high levels. Gold fell by Rs 785 per 10 gram or by 9.7 per cent to Rs 7,315 on December 21. It recovered by Rs 300 thereafter to close at Rs 7,615 on December 30. Silver reacted by Rs 1,085 per kg or 8.1 per cent to Rs 12,280 on December 21. It recovered by Rs 485 to close at Rs 12,765 on the last day of the year 2005.

International gold prices reached $544.50, a two-year high, and it has rallied 27.6 per cent this year from its year low of $426.80 in January 2005. Still, gold is a long way away from previous highs. The price of $875 an ounce that it reached in 1980 would be equal to $2,050 an ounce in 2005.

Gold fell to $253.20 in 1999, a 20-year low, but is now heading for its fifth consecutive annual gain. Demand has grown from jewellers as well as investors, and supply tightened as central banks slowed sales of gold reserves and production from the world's mines declined.

International gold this year gave higher returns to its investors at 27.7 per cent this year, compared with a 3.8 per cent increase in the Standard & Poor's 500-stock index.

US Treasury securities have returned 2.77 per cent this year, including reinvested interest, after gains of 3.50 per cent in 2004 and 2.26 per cent in 2003, according to Merrill Lynch data. In the previous three years, returns averaged 10.6 per cent.

Investors accounted for 14 per cent of gold demand in 2004, up from 10 per cent in 2003, according to the World Gold Council, a producer-financed group based in London. In the third quarter, investor demand for coins, bars and funds that buy bullion was up 56 per cent from a year earlier.