Gold Weak Investment In 1996

Gold remained a weak investment instrument during 1996 which was mainly attributed to brisk supplies resulting from improved sales by the official sector. Though the fabrication demand showed a marginal rise to a new record level, it was insufficient to support the price at the levels of around $ 400 per ounce attained in the first two months of 1996. These observations have been made in the annual survey, 'Gold 1997', done by Gold Fields Mineral Services (GFMS).

The survey adds that during the whole year, the average price in London (PM fix) at $ 387.87 was actually higher by 1 per cent than in 1995.

 

The gold market witnessed a lot of fluctuations in 1996. The downward trend in last year was mainly influenced by the two large sales totalling 500 tonnes by the central banks of Belgium and the Netherlands. The sales added considerably to market supply in the first and fourth quarter respectively. Also, the fear of further official mobilisations, simulated by the discussions at the International Monetary Fund (IMF) about a possible sale of a small part of its gold reserves and by the Swiss National Bank's plans to use some of its large gold reserves to fund a new humanitarian foundation weakened the trend.

The GFMS report, however, points out that there were significant purchases by other central banks leaving the net sales for the year at a relatively modest total of 239 tonnes.

With the sales by Belgium and the Netherlands as well as the IMF and the Swiss developments (even though neither of the latter two developments were reflected in any form of mobilisation), the result was a sharp decline in sentiment in the final months of the year which led to a huge increase in short selling by US-based funds and a further fall in prices. During the whole year, European and North American investors were responsible for an estimated 163 tonnes of supply having to be absorbed almost cancelling out the physical investment in bar gold in other parts of the world.

Mine production went up by 77 tonnes (3.4 per cent) to 2,346 tonnes in 1996 after having declined marginally in the previous two years. This increase was inspite of further falls in two old and established gold producing countries, South Africa and Russia. The production in South Africa, still the world's largest producer, fell below 500 tonnes for the first time since 1956.

Demand for jewellery fabrication rose for the third successive year showing an increase of 40 tonnes (1.4 per cent) to a new record level of 2,807 tonnes. The good performance from the jewellery sector was based mainly on developments in India where fabrication rose to 428 tonnes.