‘Investors are turning to gold as a safe haven in times of turmoil’

 James Burton, CEO of the World Gold Council (WGC), spoke to Emirates Business about the volatility in the gold market, the tight supply, and the robust demand that has pushed the price of the yellow metal to record levels. The WGC launched a number of gold-backed, exchange-traded funds, including gold bullion securities on the London Stock Exchange in December 2003, and StreetTracks gold shares on the New York Stock Exchange in November 2004. Recently the WGC launched gold shares in Dubai.

There has been a lot of fluctuation in gold prices recently. Where do you expect prices to be by the end of 2008?

We do not predict gold prices; we are here to create and stimulate demand. Having given you that caveat, I would like to stress that the gold market is very healthy on the back of robust demand and strong fundamentals that underpin prices.

There have been a lot of anti-trust concerns in the US, pushing the prices up. At the same time, gold supply is very constrained. Gold miners are not producing as they should. The supply has increased by only two per cent if we compare it to last year. Then, central banks are not selling as much gold as they could. The demand for gold has gone up tremendously in the past six years across all sectors, such as consumer electronics [industrial], investment and jewellery.

We also have to take into consideration tactical influences that we are facing today. The US dollar is falling and the fear of inflation has gripped people all over the world. The whole problem of the sub-prime credit crisis has had a tremendous impact on fixed income securities. As a result, investors are turning to gold as a safe haven in times of turmoil. It provides stability and quality, and gold is an asset that is nobody’s liability.

Gold exists on its own and no government is related to it.

Have you been affected by the sub-prime crisis?

No. We have very little money to invest. Whatever we have, we spend on programmes to stimulate gold demand.

From which area have you seen the maximum demand for gold coming?

Influential demand for gold is coming from the jewellery market. Last year we saw gold jewellery being sold for a record $55 billion (Dh202bn) and total gold consumption was close to $80bn. Growth figures have been impressive year-on-year.

What about patterns of investment in gold – do you notice a discernible difference now?

Physical gold market growth has shown a lot of improvement but the highest growth has been in investments, particularly in exchange-traded gold products. In 2007, exchange-traded gold stood at 251 tonnes and the average price of gold then was roughly $680 an ounce. These figures are quite substantial.

How has investor interest been during the first quarter of 2008?

Investor confidence has been consistent. In the first two months of 2008, we saw a growth of 30 tonnes. Some investors are still on the sidelines, but we believe there is space for growth.

Do you expect speculative elements of gold investment to subside once global economic confidence returns?

By the nature of speculation, people who do it are attracted to hot markets. But the real question is how much of the current interest is from speculative investors, and nobody has a clear answer to that. When gold fell from the recent high of $1,030 per ounce to $880, we saw very little net selling in exchange-traded gold. Investors are there for the long term.

What factors are holding back the gold industry today?

In every country there are some regulatory barriers, such as import and export duties and luxury taxes. I would say these are smaller issues. The main challenge that the gold jewellery industry is facing today is that there is less money available to spend on marketing. We don’t have as much money to spend as the diamond business does, or luxury products like Louis Vuitton. The gold industry is very fragmented and there is a need for different players in the industry, local retailers for instance, to come together to support our programmes.

How do you plan to market your recently launched gold shares?

For our gold shares, we will take the route of traditional marketing. Anybody can buy a gold share. The Dubai International Financial Centre Exchange is an international exchange and people can go to any broker approved by the Dubai Multi Commodities Centre.

PROFILE: James E Burton, Chief Executive Officer, World Gold Council

James E Burton joined the WGC as Chief Executive Officer on October 1, 2002. His appointment marked an important step in the ongoing development of the WGC as a commercially driven marketing organisation for the gold industry. 

Under Burton’s leadership, the WGC is engaged in building demand for gold jewellery. The organisation has successfully established a network of distribution partners and a range of products to influence gold off-take, making it easier to invest in gold.

Most recently, Burton was instrumental in the WGC’s launch of gold shares in Dubai.

Burton is the former CEO of the California Public Employees Retirement System (Calpers), a position he held from 1994 until September 2002. Prior to working for Calpers, he was deputy state controller for California.

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