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Emerging economies scramble to buy gold
Sunday, November 08, 2009
By Mansoor Ahmad
LAHORE: Gold might have lost its appeal to the minds of most of the central banks which now rely on paper money, but its glitter spread after the sophisticated economic models failed recently.
As the emerging fast-growing economies look to gold as a safer investment than the US dollar and euro, its increased demand is pushing its prices higher every day. Gold prices are bound to go further up as the dollar weakens and Asian economies having huge dollar reserves scramble to shield themselves by buying gold.
The News has found the demand of gold in the global market has always been higher than its supplies. Another interesting fact is that about 75 per cent of the world’s gold is not available to governments and is being held privately in the form jewellery, bullion and coin.
Annual gold consumption for one decade averages 3,800 tons while its production is a little less than 2,600 tons. The balance requirement is met by remaking of scrap jewellery and from sales of reserves held by various central banks. This is steadily pushing the gold rates up. The decision of IMF to sell gold was not new in the gold market.
The current increase in gold prices to a record high above $1,100 in the international market was triggered by the IMF’s decision to sell 403 tons of gold from its reserves to central banks of India and China. Out of that quantity, India has already purchased 200 tons.
Had this huge quantity been sold in the open market, the prices of gold would have declined instead of going up. The IMF sold gold from its huge reserves to provide aid to underdeveloped countries, apparently unaware of how markets might react.
An interesting point about the gold sale is that in 1991 India kick-started economic reforms process owing mainly to a serious balance of payments crisis. At that time, India had no foreign exchange reserves to finance even a month of imports and had to pledge gold with the IMF to obtain a loan. Now it is the IMF that has sold gold to India to generate money to loan to poor nations.
According to the study conducted by The News, the world currently has somewhere between 120,000 and 140,000 tons of gold ‘above ground’. Divided among the population of the world, it comes to about 23 grams per person.
The US gold reserves are just over 8,000 tons worth about $268 billion, or 2.5 per cent of the US national debt. This clearly shows that the gold reserves have no relevance to sovereign debt.
In fact, only about 30,000 tons, about 1 per cent of the world’s sovereign debt, are held in central bank gold reserves. The major quantity of this sovereign held gold is with the US at 8,139 tons, Germany 3,439 tons, IMF 3,217 tons (of which 403 tons sold recently), France 3,025 tons, Switzerland 2,590 tons and Italy 2,452 tons.
The central bank of Pakistan might have only nominal gold reserves but local families consume 119 tons of gold annually, making the country the 12th largest consumer in the world. Indian consumers with 855 tons annual consumption and US with 403 tons are the two top consumers of gold in the world.
Other top gold consumers besides India, US and Pakistan are China 298 tons, South East Asian countries 285 tons, Europe 260 tons, Saudi Arabia 228 tons, Gulf countries 165 tons, South Korea 124 tons, Egypt 120 tons, Turkey 120 tons and Japan 109 tons. These countries consume over 2,300 tons of gold.
India’s consumption is higher than the combined consumption of US and Europe. Similarly, its consumption of 855 tons is higher than the annual gold consumption of 752 tons by major Muslim countries such as Pakistan, Egypt, Saudi Arabia, Turkey and Gulf states.
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ISSN 1563-9479 
