Gold And The Indian Wedding Season

The latest figures released by the World Gold Council for the first half of 2005 show that the demand/supply fundamentals remain extremely strong. Gold demand for the first half was up 21 percent in tonnage terms and 29 percent in dollar terms, despite a 14 percent increase in supply and a 9 percent increase in the gold price over last year. Jewellery demand was strong, up 17 percent in tonnage terms, with India accounting for 29 percent of global demand, up an outstanding 54 percent for the first half, ahead of the traditionally strong wedding season.
However, investment demand was the highlight, up by a massive 66 percent for the first half compared with a year earlier. I think this is particularly important and indicates that the "smart money" expects the price to increase further. Gold producers share a similar bullish view; there has been a significant fall in producer hedging. I believe the World Gold Council figures support my long-held view that gold is in the early stages of a secular bull market supported by macro-economic and strong demand/supply fundamentals.

Mine production has stagnated over the past five years and last year global production fell 5 percent, because of the continuing sharp decline in South African production. The latest second-quarter figures show that South African production, down by 18 percent, has declined again on the previous corresponding period, due to rising costs with the strength of the rand and falling mine productivity. South Africa produced 14 percent of global gold production in 2004 compared to 68 percent in 1970. Central bank agreements have also substantially capped official sales, with net gold sales last year of just 478 tonnes, compared with 617 tonnes in 2003.

The massive US trade and budget deficits show no signs of any meaningful recovery, which, I believe, will result in the resumption of the bear trend for the US dollar at the conclusion of the current rate tightening program by the Federal Reserve. Certainly, the recent weakness in the US dollar and the bond markets are suggesting the Fed’s program is close to complete, with the recent downgrades in US GDP being exacerbated by the effects of Hurricane Katrina.

Gold is underpinned by a confluence of factors, not to mention the upcoming the traditional Indian wedding season, which we expect will result in a major bull market.

The gold price is now only 1.5 percent below the December 2004 high of $US456, the highest level since 1988. A break through this level will trigger a major run to $US500. My strongest recommendations remain Newcrest (NCM), Sino Gold (SGX) and Kingsgate (KCN). For those who want pure spice and leverage in their lives, Lihir (LHG) is the place to go.