Gold’s Rout Spurs Surge in Indonesian Demand (Aug 2013)


Source: Bloomberg – Gold’s Rout Spurs Surge in Indonesian Demand: Southeast Asia

Notable excerpts:

Gold jewelry demand in Indonesia is set to expand to a four-year high as consumers in Southeast Asia’s biggest buyer join India to China in increasing purchases as prices slump and the middle class expands.

Consumption of necklaces, bracelets and rings will probably climb to 40 metric tons this year, according to Iskandar Husin, secretary-general of the Indonesian Goldsmiths and Jewelers Association. That’s a 30 percent increase from 30.8 tons in 2012, and the most since 41 tons in 2009, data from the London-based World Gold Council show.

Gold fell into a bear market in April as haven demand waned and sales from exchange-traded products reached a record, spurring increased buying from India to China, the world’s two biggest consumers. President Susilo Bambang Yudhoyono forecast a jump in per capita incomes this month even as stocks dropped and the rupiah tumbled. Southeast Asia’s largest economy has more than quadrupled in the past 10 years to $878 billion.

“Gold jewelry is all about lifestyle and saving,” Husin said in an interview in Jakarta. “It’s a market driven by the increase in GDP and modern Indonesian women, who are following the trends in fashion and design.”

Bullion for immediate delivery has declined 18 percent to $1,377.50 an ounce this year on concern that the U.S. Federal Reserve will taper stimulus as the world’s largest economy strengthens. The precious metal, which dropped to a 34-month low in June, has lost 28 percent since reaching a record $1,921.15 in September 2011.

Lower prices boosted Indonesia’s total gold demand, including for investment, 55 percent to 16.4 tons in the second quarter compared with a year earlier, increasing first-half consumption 11 percent to 33.4 tons, according to data from the producer-funded council. Jewelry accounted for 57 percent of demand in the first six months, with the rest in bars and coins. In China, gold purchases advanced 45 percent to 571.2 tons in the first half, and 48 percent to 567.5 tons in India.

There are signs that gold is moving from west to east, UBS AG said in a report on Aug. 15, citing declining inventories on the Comex in New York. Global holdings in exchange-traded products, which trade like shares and allow holders to invest in gold without taking physical delivery, shrank 26 percent this year to 1,948.3 tons, according to data compiled by Bloomberg.

The increase in demand has helped producers including PT Aneka Tambang. (ANTM) The state-run mining company known as Antam said on July 30 that first-half revenue rose 37 percent to 6.125 trillion rupiah ($568 million) from a year earlier, with gold sales accounting for 46 percent of the total. The company, which runs a precious-metals refinery in Jakarta, sold 5.5 tons of gold in the period, up 51 percent from last year.

Our production cannot keep up with demand because it’s so high,” Finance Director Djaja M. Tambunan said. “Investors see gold as hedging against inflation. If inflation is out of control, people will turn to either forex or gold markets.”

Indonesia’s consumer price index rose to 8.61 percent in July, the highest level since 2009, the Central Statistics Agency said on Aug. 1. The increase, which exceeded economists’ expectations, came after the government raised subsidized-fuel prices on June 22 for the first time since 2008.

“No countries are immune from the effect of global economic conditions, including Indonesia,” said Martiono Hadianto, president director of PT Newmont Nusa Tenggara, a unit of Newmont Mining Corp. (NEM), which runs the Batu Hijau copper and gold mine on Sumbawa island. “Indonesia’s role in global gold consumption is still relatively low. It won’t affect prices.”

Global consumer demand was 3,164 tons last year, according to the World Gold Council, which estimates jewelry and investment sales in Indonesia totaled 52.3 tons. Consumption in Thailand, Southeast Asia’s second-largest economy, was 80.9 tons in 2012, while Vietnam’s was 77 tons.



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