Higher prices for gold and market-specific difficulties led to a steep decline in gold jewelry demand for the first quarter of 2016, according to the World Gold Council.
Global gold jewelry demand fell 19 percent, year-over-year, to 481.9 tons for the period (a four-year low) led by large declines in demand in India and China, the two largest gold markets, the WGC said in its quarterly “Gold Demand Trends” report.
But the decline in demand spread worldwide as a 122 percent increase in gold investment demand led to a surge in the price of the precious metal. The WGC attributed this increase in demand to a “swirling uncertainty" created by a "mix of factors" that "undermined confidence in traditional asset classes.” This included Negative Interest Rate Policies implemented by the central banks of Japan and Europe, China’s devaluation of the yuan fueling fears over the country’s economic health, and the expected slowing pace of interest rate rises in the U.S.
This resulting increase in the price of the precious metal slowed jewelry making activity in much of the world. There were few bright spots.
India’s jewelry manufacturing operations “virtually ground to a halt” in March due to “a combination of surging prices and industrial action in protest at government policy,” the WGC said. The protests erupted with the India’s government announced plans to impose a 1 percent excise tax on jewelry manufacturing. Jewelry stores throughout much of the country closed for the entire month of March and into April.
The result was that first quarter gold jewelry demand fell 41 percent to 88.4 tons in India, a seven-year low. However the WGC added that it believes business will soon return to normal as most stores re-opened in the second half of April for the Akshaya Tritiya festival in early May and the start of the wedding season.
Meanwhile, China saw a 17 percent decline in gold jewelry demand year-over-year to 179.4 tons due to “sharply rising gold price against a background of continued economic slowdown,” the WGC said.
The high price of gold took its toll in other Asian markets. Malaysia (-23%) and Indonesia (-10%) were the weakest performers.
Vietnam was an exception to the depressed regional market, with jewelry demand 6 percent higher year-over-year. However, the WGC warned that at least some of this growth could be attributed to investment demand.
The US proved to be one of the few bright spots in the world as demand for gold jewelry continues to grow. In the first quarter demand increased 2 percent year-over-year to 22.6 tons, marking the ninth consecutive quarter of year-over-year gains, “impressive for a market where economic growth has remained relatively anemic,” the WGC said.
Some retailers were re-entering the gold jewelry market after slashing or completely eradicating their gold product offerings, WGC said. In addition, double digit gains in gold jewelry imports in January and February “was a clear indication of US consumers’ continued desire for gold jewelry.”
The lone bright spot in the Middle East was Iran where gold jewelry demand rallied by 10 percent year-over-year to 9.9 tons as the market continues to feel the benefit of the lifting of Western sanctions. However, the WGC added that this growth was tempered by the impact of 9 percent VAT.
The remaining Middle Eastern markets uniformly saw double-digit losses in the first quarter as the region is beset with low oil prices and weak tourism revenues, in addition to the high price of gold. Egypt was the worst casualty as demand fell 18 percent to 7.7 tons.
In Turkey, gold jewelry demand declined 18 percent to 8.5 tons as the high price of gold, a struggling domestic economy and terrorist activities weighed on sentiment, the WGC said.
In Europe, gold jewelry demand was lackluster with a 1 percent increase to 12.7 tons.
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