Fire bell in the night

9 January 2008 By Martin Hutchinson

Asian growth can t explain the alltime high price of gold. Noninvestment demand for the metal has dropped since 2005. But gold is still the ultimate inflation hedge; a 33% price rise since August indicates investors are afraid central banks have lost monetary control.

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Gold closed at $882 per ounce on January 9, above its 1980 intraday peak of $875 per ounce. On an inflationadjusted basis, the 1980 price is equivalent to over $2,000 per ounce.

According to the World Gold Council, between the nine months JanuarySeptember 2005 and the same period in 2007 gold demand in volume terms dropped 5% overall, with jewellery demand dropping 11%. Industrial and retail investment demand increased by 5% between the two periods and Exchange Traded Fund demand increased 38%, though in the latter period it still represented only 6.5% of total demand (jewellery was 68% of total demand.) In dollar terms, the gold price increased 57% between the two periods.

Total gold demand was up 6% between the third quarter of 2006 and 2007, with jewellery demand up 8%. Jewellery demand in India was up 5% between the two periods to 27% of the world total, Chinese demand was up 24%, to 16% of the world total, Middle East demand up 14%, to 17% of the world total and Russian demand up 22% to 5% of the world total

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