According to GEMS, the largest analytical company in the precious metals market, the world demand for gold in 2006 went up by 22% as compared with the previous year and reached a record high notch of $65 billion. Last year, gold prices rose by 23%. The investors’ demand grew by 7% (up to 637 tons) in physical terms and by 45% in dollar terms due to Exchange-Traded Funds and other similar funds, whose value was pegged to gold. In the year passed, the demand from jewellery manufacturers increased by 14% - up to record $44 billion. In the first quarter of 2007, investors and jewellery markets demonstrated a stable demand for precious metals.
According to the World Gold Council survey, in the second quarter of 2007 the demand for gold on the part of jewellery manufacturers rose by 37% compared with the same period in 2006 reaching, again, a record index of $14.5 billion. Particularly in Russia, in the course of three months only – starting in April, when gold actually shifted upwards due to the wonton growth of euro/dollar rate, and ending in June – the demand leapt to 27%: the domestic jewellers and other buyers of precious rough materials needed in that period over 20 tons of gold.
Three years back gold was priced at $330. Currently, its price has doubled. However, the price growth capacity is far from being burnt out: the Citygroup experts forecast a further gold price rise of 30 – 40% in the coming year – up to $1000 per troy ounce (31.1 g). The price for other precious metals, like platinum, palladium and silver, will follow suit.
Analysts note that gold prices are changing in direct relation to oil prices and in inverse relation to the dollar rate. The high price for gold may be also attributed to the demand from jewellers and investors who are using gold as a reserve instrument almost unexposed to market risks.
The jewellers in the City of Chelyabinsk are even predicting a gold deficit. Vladimir Meshalkin, CEO of the Urals Jewellery Wholesale Center, noted, “It is quite possible that in December we shall face a deficit of goods, a plain deficit of goods, because many suppliers are incapable to meet the demand – even such as there is now.” The growth of gold prices, according to Vladimir Meshalkin, may in the first place affect the jewellery production. Russia occupies the 5th place in the world by its gold mining turnout. Nevertheless, despite stable development of gold fields gold scarcity may be felt already in the end of this year.
As reported by Russian mass media, Sergey Vybornov, speaking at the Diamond Conference in Antwerp, said that by 2012 the world diamond demand would reach $18 billion whereas the supply would amount to $9 billion. Such a forecast is promising a profit growth but may also implicate a crisis. ALROSA deems it necessary to make the way of diamonds from the strip mine to the jewellery store as short as possible. “We believe the ideal structure would be direct sales of rough diamonds to established globally jewelry brands. ALROSA started direct sales to Tiffany & Co., and we are confident that such sales will breathe a new life into the jewelry trade,” S. Vybornov said.
Russian clients would also be glad to switch over to long-term contracts with ALROSA as they told to the “Vedomosty” Daily. Ruis Diamonds has already started consultations pertaining to this matter, said Valery Morozov, CEO of this diamond cutting company. ALROSA has not yet discussed this problem with Kristall of Smolensk, which buys 70% of its rough from the diamond mining company, Kristall spokesman Nickolay Zhuravlev said. According to him, passing over to long-term contracts would allow to develop his company’s production and sales strategies more efficiently.
Kristall General Director Maxim Shkadov is sure that the Russian government’s instruction to solve the matters related to rough diamonds supply to Kristall will be fulfilled: “The government composition has changed but the instructions abide. I cannot say whether the new government of the Russian Federation will discuss this matter at a separate session as it was decided earlier but its ministries and agencies are working on it. It is difficult to expect some effect soon but the work is going on, I know it for sure.”
Pallinghurst Resources LLP, an investment group, intends to cooperate with the Russian diamond company and said it would be prepared to spend as much as $450 million to develop a colored gemstone and luxury-goods business under the Faberge brand, Bloomberg reports. The group led by Brian Gilbertson, a former chief executive officer of SUAL, will engage in jewellery sales in 2008. The group hopes to comer to terms with ALROSA about joint promotion of this brand.
