World Gold Council Reports Second Successive Quarter of Strong Consumer Demand

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WORLD GOLD COUNCIL REPORTS SECOND SUCCESSIVE QUARTER OF STRONG CONSUMER DEMAND

London, 19 August 2004: Figures published today by the World Gold Council reveal that year-on-year consumer demand for gold continued to rise in the second quarter of 2004, with increased demand for both jewellery and retail investment.

The figures, which were compiled for the World Gold Council by GFMS Ltd, reveal that consumer demand rose by 11% in tonnage terms, and by 25% in dollar terms, compared to a year earlier. The rise in demand was fuelled by strong economic growth, relative absence of price volatility, and continuing concerns over the long-term economic and political outlook.

Demand for gold jewellery was 8% higher, at 664 tonnes, than a year earlier, despite a 13% increase in the gold price. Meanwhile, net retail investment in key markets demand rose by a third to 79 tonnes, the highest Q2 figure since 1999 when demand was driven by fears of the millennium bug. Industrial demand for gold was 7% higher than a year earlier, the eighth consecutive quarterly figure to show a year-on-year increase, due mainly to increasing demand for gold for electronic components. Year-on-year comparisons have been boosted slightly by the impact of the SARS virus in Q2 2003.

The encouraging Q2 results for consumer demand follow a 12% year-on-year rise in consumer demand in the first quarter of 2004.

Net central bank selling in Q2 was half of that of a year earlier. Planned central bank sales under the Central Bank Gold Agreement were partly offset by purchases by Argentina, which bought 42 tonnes during the first six months of the year.

Institutional investment demand is thought to have fallen as some short-term holders, who had bought gold in earlier months when the price was rising, sold in the absence of any further price gain. However the selling back was noticeably less than the purchasing experienced in 2003 and evidence suggests that many buyers have held onto their investment.

James E Burton, Chief Executive of the World Gold Council, said about the Q2 figures: “The fact that consumer demand is up, for the second successive quarter, is good news for the gold industry. Yet it is important that we are not complacent. The rise in demand for jewellery and retail investment in key markets has been aided by strong economic growth and relative absence of price volatility, but gold’s battle for share of wallet remains.

“We believe our promotional activities have clearly helped to boost demand in major markets such as Turkey, China and India. Going forward, we believe that continued promotion is essential both to make jewellery exciting and relevant for today’s consumer, and for the continued long-term health of the gold market.”

Consumer Demand

Overall demand by consumers in Q2 (jewellery and net retail investment) reached 743 tonnes, a substantial 11% rise on Q2 2003.

Although demand is inevitably affected by the level of the gold price, particularly in the key regions of Asia and the Middle East, it is a rapid rise in price rather than the price level that deters buying. Consumers will buy again once the price is perceived to have stabilised, whether it stabilises at a higher or lower level is less important. In the first half of 2004, consumers appear to have adapted to a price level close to $400 per ounce and the absence of any major price spike above this level in Q2 was a major factor for increased demand.

In addition to strong economic growth, relative absence of price volatility, and continuing concerns over the long-term economic and political outlook, demand in the Middle East is boosted by the rising oil price.

· India

Both jewellery and retail investment demand were buoyant in India in Q2, just as they had been in Q1. Jewellery demand was only slightly higher than Q2 2003 but the latter was an exceptionally strong quarter. Jewellery demand for the first half year was 7% higher than in the first half of 2003 in tonnage terms and 17% higher in rupee terms. The economic climate in India was propitious; real GDP in the 2003/04 fiscal year (ending March) grew by 8.5% with double digit growth in agriculture following 2003’s good monsoon.

· East Asia

Consumer demand jumped by a third in Greater China, and by almost as much in China itself. The main cause of the increase was the effect SARS had on demand in Q2 2003, but jewellery buying, at 50 tonnes, compared with 44 tonnes two years earlier (14% higher), is still a significant increase irrespective of the virus. During the quarter, the WGC launched its large-scale television and print ‘K gold’ (Italian-inspired 18 carat gold) campaign in Beijing to help boost the appeal of 18 carat gold jewellery to young urban consumers.

In Japan gold jewellery demand was 10% higher than a year earlier. This was helped by the unexpected strength in the economy. However, economic and financial concerns remain and these supported a recovery in retail investment to more normal levels.

Vietnamese demand soared by over 50%. Jewellery demand was 17% higher (in part due to the impact of SARS in 2003) but the star performer was investment. In Q2 this was a massive 72% higher than a year earlier, while for the first half as a whole investment was 90% up year-on-year. These figures are, not surprisingly, all-time records. Economic conditions and gold’s property as an inflation hedge provided the main stimuli for this. Inflation in Vietnam reached 7.2% for the first half year, nullifying the interest received on local savings deposits. Meanwhile the dong is slowly depreciating against the US dollar. With constraints on buying dollars, individuals have increased their investments in gold.

· Middle East & Turkey

As in Q1, the strong oil price provided a background of consumer optimism in Saudi Arabia, UAE and the rest of the Gulf States. The UAE benefited from a 27% increase in the number of tourists and a good increase in gold sales in the summer festival. Gold demand was 9% higher than in Q2 2003. In Saudi Arabia, jewellery demand rose by 12%. Other Gulf states also reported a combined 11% increase in gold jewellery demand.

Jewellery demand in Turkey remained exceptionally strong in Q2, as it was in Q1. Purchases rose 36% in tonnage terms in the quarter, from what was already a strong Q2 in 2003. Demand for 22 carat jewellery was particularly strong. In part, this can be attributed to rising demand for the traditional plain jewellery which is used as a means of saving. However, demand for more elaborate 22 carat pieces also appears to have risen, driven by promotions such as the ‘Living Traditions of Anatolia’, a joint initiative between WGC and Atasay.

· US

Jewellery sales in the USA were 4% higher in Q2 in tonnage terms than a year earlier. Buying was strong in April and also in the run-up to Mother’s Day. While the US economy is booming this year, there are concerns about the sustainability of the upturn. Limited, and apparently slowing, growth in employment is sapping consumers’ confidence and restraining purchases of luxury goods.

· Europe

Trends in Europe remained generally negative, although the decline was less strong than in the past. In Italy, the impact of the rise of mixed material or gold accented pieces on the tonnage of gold sold is being cushioned by these items’ gold content largely remaining as solid 18 carat. In the UK, concerns about the impact of rising interest rates on disposable income have dampened optimism. However, while overall gold demand fell by 5%, there was a year-on-year rise in 18 carat gold pieces (growth of 13% in hallmarking) gold due to successful independent retailer trading and increased demand for more stylistic and jewellery accented pieces.

Industrial Demand

Industrial demand accounted for 87 tonnes in Q2, a 7% rise on the same period in 2003. Industrial purchases were driven primarily by rising demand for electronics components. Strong rises were seen in production of both gold bonding wire and, in particular, gold potassium cyanide. While it was not the only region to benefit from the rising trend, the increase in output was particularly strong in East Asia.

Institutional Investment Demand

The relatively strong performance of the dollar during the quarter was another factor for the decline since the dollar is an important inverse driver of the gold price. However, while short-term investors sold, other institutional investors appeared to hold their positions even though they did not, as a group, buy further. Concerns over the sustainability of the 2003 economic upturn and over the future health of equity markets appear to have supported this attitude. Further evidence of this is shown by the gold holdings in Exchange Traded Funds. While Gold Bullion Securities has attracted some short-term purchasers, in general these funds appear to attract longer-term holders and levels appear to have remained more stable.

Central Banks

Mine production was slightly below output in Q2’03 partly due to a reduced output from the massive Grasberg mine in Indonesia following the landslides in the final quarter of last year, and cuts in marginal output in South Africa. Scrap supplies fell quite sharply due to price stability.

During Q2 net selling from Central Bank Gold Agreement (CBGA) signatories was largely as expected comprising steady selling of 69 tonnes from Switzerland, together with a 35 tonne sale from Portugal, while there was a small disposal of gold by Germany for coin minting. The impact of these sales was partly offset by purchases by Argentina. In the first six months of this year it bought 42 tonnes of gold.

Gold demand1

1. Excluding institutional investment. Data for jewellery and net retail investment are on a consumption basis. 2. Provisional. 3. Major countries only.

2. Source: Tonnage data are from GFMS Ltd. Value data are WGC calculations based on GFMS data.

Gold supply

1. Provisional. 2. Excluding any delta hedging of central bank options.

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Contact:

For further information, contact Anita Saunders, head of public relations at the World Gold Council, on +44 207 826 4716, or 07769 682373, or e-mail .

Notes to Editors:

World Gold Council

The World Gold Council (WGC), a commercially-driven marketing organisation, is funded by the world’s leading gold mining companies. A global advocate for gold, the WGC aims to promote the demand for gold in all its forms through marketing activities in major international markets. For further information visit www.gold.org.

GFMS Ltd

GFMS Ltd is an independently owned precious metals consultancy, specialising in research into the global gold, silver, platinum and palladium markets. GFMS is based in London, UK, but has representation in Australia, China, India and Russia, and a vast range of contacts and associates across the world. For further information visit www.gfms.co.uk.

© 2004 The World Gold Council and GFMS Ltd. All rights reserved. This document is World Gold Council (WGC) commentary and analysis based on gold supply and demand statistics compiled by GFMS Ltd for the WGC along with some additional data. See individual tables for specific source information.

No organisation or individual is permitted to disseminate the statistics relating to gold supply and demand in this report without the written agreement of both copyright owners. However, the use of these statistics is permitted for review and commentary (including media commentary), subject to the two pre-conditions that follow. The first pre-condition is that only limited data extracts be used. The second precondition is that all use of these statistics is accompanied by a clear acknowledgement of their source. Brief extracts from the commentary and other WGC material are permitted provided WGC is cited as the source.

Whilst every effort has been made to ensure the accuracy of the information in this document, neither the WGC nor GFMS Ltd can guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell gold, any gold-related products, commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein.The WGC and GFMS Ltd do not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.