Record high prices for gold and increased investment demand for the precious metal, has led to the lowest demand for gold jewelry since 2010, according to the World Gold Council.
Gold jewelry demand declined 14 percent year-over-year for the second quarter of 2016 to 444.1 tons led by the two largest gold jewelry markets in the world, India and China, the WGC said in its quarterly Gold Demand Trends report.
It’s a continuation of how the year began. Jewelry demand in the first half of 2016 fell by 185.5 tons from the prior year—out of which 149.4 tons was due to combined weakness in India and China.
Meanwhile, the U.S. continues to show improvement, along with Iran, according to the report.
The dollar value of gold jewelry demand for the first half of 2016 was the lowest since 2010, at $36.3 billion.
The high price of gold has led to a substantial increase in gold recycling. In the first half of 2016, gold recycling generated 686.7 tons of supply, the highest first half total since 2012.
“We recently conducted a large-scale survey in which high gold prices were cited as the most important factor influencing the decision to recycle gold jewelry,” WGC said in its report. “Among the respondents in India and China who had ever sold gold jewelry, a high gold price was the most common reason cited for doing so (27% and 43% respectively).”
The Gold Demand Trends report adds that “price volatility can further magnify this effect.”
In India, “paltry import numbers and steep local discounts were omens of a disappointingly weak quarter,” WGC said. Official imports of gold were cut in half to below 100 tons (the lowest amount since 2013).
The WGC says India faced three key issues:
• A sharp jump in the gold price
• Weaker rural incomes
•Government regulation in the form of a 1 percent excise duty that caused a six-week strike by jewelers and resulted in an estimated 44 tons of smuggled gold entering the market.
In China, second quarter gold jewelry demand fell 15 percent to 143.5 tons due to high prices, low economic growth and weak consumer confidence. As a response gold recycling activity reached a nine-quarter high, according to WGC. In addition, changing consumer tastes in China had an impact as consumers are shifting to fashionable, unique, highly designed 18k or gem-set pieces as opposed to traditional 24k jewelry.
“This trend may continue, given the younger profile of 18k gold jewelry customers, WGC said. “Our survey showed that, of the more-than 1,000 respondents who had bought gold in 2015, 18 - 30 year olds were more likely to buy 18k jewelry than 24k (39% vs. 25%).”
Some of the smaller markets in the Southeast Asia were positive in the second quarter, but the WGC attributes this to weak demand in the second quarter of 2015. “First half demand across all regional markets was subdued compared with 2015, registering single-digit percentage changes.”
In the U.S., a slight 1 percent year-over-year increase to 25.9 tons marked the 10th consecutive quarter of year-over-year growth. In the first half of 2016, jewelry demand reached a seven-year high of 48.6 tons. This is despite a more subdued consumer environment ahead of the presidential elections.
“Growth in jewelry and watch sales comfortably outstripped that of general retail sales for much of the year-to-date, although the comparison was slightly flattered by weak gains in early 2015,” the WGC said. “Consistent, if moderate, economic growth and improving employment levels are supporting demand, although enthusiasm in the sector can be expected to wane over the coming months as the elections draw nearer.”
In the Middle East, demand remained weak, with the exception of Iran (due to the removal of international economic sanctions). The WGC blamed the combination of high gold prices, relatively low oil prices and continued geopolitical unrest.
Demand in Egypt hit a record low of 5.3 tons. “The domestic currency remains very weak, following the devaluation in March making local gold prices punitively high for many consumers,” the WGC said.
Meanwhile, demand in Iran continued to improve, growing 10 percent in the second quarter to 17.9 tons.
In Turkey, second quarter demand dropped 25 percent year-over-year to 8.7 tons. “Ongoing political tensions, reduced tourism, rising unemployment, together with collapsing export revenues from Russia affected local sentiment towards gold,” the WGC said.
In Europe, “jewelry markets have been relatively subdued so far this year,” WGC said. “Despite the higher gold price, stabilization or modest growth was the norm as economies continue to recover and the high-end of the market continues to grow.”
France was an exception as demand slipped 2 percent to 2.5 tons. Demand in the U.K. grew marginally to reach 8.2 tons in the first half, the strongest first-half showing since 2010.
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