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Thursday, November 12, 2015

Gold Jewelry Demand Up 6% in Q3 As Gold Prices Fall

Consumers in much of the world increased spending on gold jewelry, making pieces by designers such as Alex Soldier more in demand

Global demand for gold jewelry grew 6 percent year-over-year in the third quarter of 2015 to reach 631.9 tons, marking the strongest third quarter for jewelry demand since 2008, according to the World Gold Council. 

Lower prices for gold in July and August attracted consumer to buy gold jewelry, according to “Gold Demand Trends” report for the third quarter of 2015. This is in strong contrast with a 14 percent decline in gold jewelry demand in the second quarter.

On a year-to-date basis, jewelry demand amounted to 1,750.2 tons, 3 percent behind the same period of last year.

In India, the drop in price of gold led to a dramatic turnaround in consumer demand for the world’s second-largest consumer of gold jewelry. Year-over-year demand for the third quarter increased 15 percent to 211.1 tons. This compares with a 23 percent decline in the second quarter of 2015.

“Between mid-July and mid-August, retailers saw unusually brisk trade for the time of year,” according to the report. “Traditionally, this period experiences a lull in demand in the pause between the end of the April-May wedding season and the onset of autumn festivities, particularly by Diwali. The surge in demand ended after mid-August with a sharp recovery in the price of gold, exacerbated by a weakening of the rupee.”

Rural and semi-urban consumers were the main engine of growth in the Indian jewelry sector, according to the report.

However, the report warns that the “fourth quarter outlook is more muted.”

In China, the world’s largest gold jewelry market, lower prices and strong Valentine’s Day sales lifted consumer consumption in the third quarter as gold jewelry demand grew a modest 4 percent, year-over-year, to 187.6 tons. In line with global patterns, consumers responded favorably to the sharp drop in the price in July. The drop in price coincided with China’s Valentine’s Day on August 20.

Again, the WGC warns that there may be trouble ahead for the gold jewelry demand in the fourth quarter.

“The jewelry sector in China faces headwinds from a number of quarters. Credit conditions remain tight and competition fierce. 18k jewelry continues gradually to encroach on the market for 24k, in part due to manufacturers pushing more contemporary, highly designed product in order to gain market share.

“Expectations for the fourth quarter are somewhat more conservative, bearing in mind the weakening macro picture.”

Meanwhile, jewelry demand in Hong Kong grew by 22 percent to 13.7 tons, primarily due to higher-design, unique pieces, popular with mainland Chinese tourists.

In the US, jewelry demand continues to make “creeping gains,” the WGC says in its report. Demand grew by 2 percent to 26.2 tons.

“Growth in the sector reflected a continued desire for gold in the 10k and 14k sectors, against a hesitant economic recovery,” according to the report. “However, imports again outpaced demand, as the retail sector shored up inventories in anticipation of further strength in demand as the holiday season approaches.”

Other markets are as follows:

* East Asia - Jewelry demand made double-digit gains in Indonesia, South Korea and Vietnam, assisted by the falling price, WGC said. Indonesian demand was further boosted by an economic stimulus package unveiled by the government in early September. In Vietnam, economic growth and a relatively benign inflation environment also contributed to the upturn. Meanwhile, jewelry demand in Singapore and Malaysia declined by 24 percent and 10 percent, respectively. Year-on-year comparisons in Malaysia were negatively affected by the Goods and Services Tax, introduced in April.

* Turkey - Demand fell 29 percent year-over-year to 12.1 tons, the lowest third quarter ever, according to WGC records. “Political instability and the rising threat of terrorist attacks have had a devastating impact on consumer sentiment. Those wishing to seek respite from the turmoil in gold did so through investment products: bar and coin demand was contrastingly positive, up 97 percent year-on-year.”

* Middle East - Demand for gold jewelry varied as minor gains in Saudi Arabia and Egypt cancelled out slight declines in Kuwait, United Arab Emirates and the other Gulf countries, WGC said. “Lower oil prices and regional political tension tussled with the fall in gold prices to keep demand broadly stable.” The exception was Iran, where jewelry demand rallied by 40 percent to almost two-year highs. “Consumer sentiment was boosted by the signing of the nuclear deal, an affect which was further magnified by the tumbling gold price, although the 9 percent VAT rate introduced in Q2 was something of a headwind.”

Gold jewelry demand in Europe fell 1 percent as demand was stagnant across most markets, according to the report. Exceptions were France where gold jewelry demand declined 6 percent and Spain where demand grew 5 percent.

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